tastytrade

Busting Market Myths | Truth or Skepticism

Aug 6, 2015

By: Mike Butler

Dylan & Tom are back for another episode of Truth Or Skepticism! In this segment, Dylan comes out firing with five trading & finance myths ranging from complexity being bad, to the deck being stacked against the little guy. Will they bust these myths or find truth to them? Tune into the segment here to find out! Here’s a quick preview below:

THE DECK IS STACKED AGAINST THE LITTLE GUY

What you want is good technology - good information flow is not as important.
— Tom Sosnoff

Dylan believes that the deck is stacked against the little guy because the larger players generally have a better information flow. Tom doesn’t believe information is as important as good technology. In the old days, the little guy would be forgotten because orders were manually routed. In today’s tech age, the little guy is in the same electronic queue. High frequency trading helps the little guy’s bid/ask spread as well.

COMPLEXITY ADDS RISK

I believe that complexity is a fraudulent representation of risk.
— Dylan Ratigan

Tom & Dylan discuss the notion that complexity adds risk. They dissect what complexity actually means, and compare the differing viewpoints - complexity of a position in an underlying vs. complexity of the variables that can affect a position. Tom argues that complexity is something that should be endorsed, not avoided.

Would you like it if I had the regulators tell you you couldn’t drive your stick sports car because it was too complex?
— Tom Sosnoff

VOLATILITY IS BAD

The thing that really appeals to me about volatility is that the human uncertainty of events always results in the overpricing of implied volatility.
— Dylan Ratigan

Tom & Dylan discuss volatility and compare it to real life. Children hopefully have a low volatility life, but as one graduates from different education systems and begins to branch out alone, that’s when the volatility starts. Tom & Dylan both agree that volatility is an opportunity, not a bad thing.

In the University sense, the expectation is that you graduate - there’s no volatility around that expectation. The volatility starts next!
— Tom Sosnoff

DIVERSIFICATION IS A STRATEGY

The only market wizards I’ve ever met are people with inside information.
— Dylan Ratigan

Dylan begs the question - are there market wizards out there? He goes on to explain that diversification in the traditional sense is very different than the tastytrade definition. Tom believes inversely correlated underlyings are the key to diversification, and blames the lack of diversification knowledge on both the financial service sector as well as the passive investor.

What drives me crazy is all of these idiotic, robotic advisors...and the reason that they say they’re necessary is for ‘competent diversification’ when, in fact, they know nothing about diversification.
— Tom Sosnoff

FEES ARE BETTER THAN COMMISSIONS

The top 8% of commission payers make the most money.
— Tom Sosnoff

Tom & Dylan both agree that when it comes down to it, if you pay a lot of commissions from trading a lot, you’re going to be better off than if you’re paying a ton of fees for someone else to manage your money. Tom reflects on his brokerage days and discusses how the people who paid the most commissions almost always made the most as well.

So if we look at the top 5 biggest fee payers, are they the biggest losers?
— Dylan Ratigan

To see earlier episodes of Truth or Skepticism with Dylan Ratigan, you can watch them here on the tastytrade archives!



Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Related Posts

tastytrade content is provided solely by tastytrade, Inc. (“tastytrade”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. tastytrade, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastytrade is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparison, statistics, or other technical data, if applicable, will be supplied upon request. tastytrade is not a licensed financial advisor, registered investment advisor, or a registered broker-dealer. Options, futures and futures options are not suitable for all investors. Prior to trading securities products, please read the Characteristics and Risks of Standardized Options and the Risk Disclosure for Futures and Options found on tastyworks.com.

tastyworks, Inc. ("tastyworks") is a registered broker-dealer and member of FINRA, NFA and SIPC. tastyworks offers self-directed brokerage accounts to its customers. tastyworks does not give financial or trading advice nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastyworks’ systems, services or products. tastyworks is a wholly owned subsidiary of tastytrade, Inc (“tastytrade”). tastytrade is a trademark/servicemark owned by tastytrade.

Quiet Foundation, Inc. (“Quiet Foundation”) is a wholly-owned subsidiary of tastytrade The information on quietfoundation.com is intended for U.S. residents only. All investing involves the risk of loss. Past performance is not a guarantee of future results. Quiet Foundation does not make suitability determinations, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of Quiet Foundation’s systems, services or products.

Small Exchange, Inc. is a Designated Contract Market registered with the U.S. Commodity Futures Trading Commission. The information on this site should be considered general information and not in any case as a recommendation or advice concerning investment decisions. The reader itself is responsible for the risks associated with an investment decision based on the information stated in this material in light of his or her specific circumstances. The information on this website is for informational purposes only, and does not contend to address the financial objectives, situation, or specific needs of any individual investor. Trading in derivatives and other financial instruments involves risk, please read the Risk Disclosure Statement for Futures and Options. tastytrade is an investor in Small Exchange, Inc.

© copyright 2013 – 2021 tastytrade. All Rights Reserved. Applicable portions of the Terms of use on tastytrade.com apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastytrade’s podcasts as necessary to view for personal use.