Today I bring you a review of a site I ran across called EZTrader.com.
EZTrader.com allows you to easily place bets on options in the stock market and FOREX market. If you profit, your option pays out between 65% and 81% of what it cost you to buy the option. So if you bought an GOOG (Google Stock) option for $100, you could make $165. However, if you don’t profit, you lose between $95 and $100. Because the outcome is based on the underlying stock price going up or going down, you pretty much have a 50/50 chance of either outcome. If the stock goes up, you profit. Goes down, you lose.
And that’s pretty much all you need to know, because those odds kill your chance of making money anyway.
I can’t remember where I clicked the banner for it, but in reading about it and doing a little research I realized that there is quite a bit of controversy over it so I thought I would share my analysis.
(My analysis isn’t favourable, so sorry to any hopefuls)
I cannot find any way to make the math work out in the investors favor. Here’s what I’ve got:
The best Win:Loss Ratio you can get is 0.65:1 (You can win $65 for every $100 risked). I used the case for the FOREX, but I know there are S&P500 that pays out higher numbers like 81%. But it doesn’t matter. As long as it’s below 100%, you’re odds of making money are slim.
So, a win:loss ratio of 0.65-to-1 means you need to win your trades 61% of the time to break even. More if you want to profit.
Think about it this way: if you could win as much as you could lose (1:1, or in EZTrader.com lingo “100% profit in one hour”) then you would only need to win 50% of your trades to break even. It’s like flipping a coin with equal payouts. But, since you can only win a fraction (0.65 or so… less than 1.0) of what you can lose, you’ll always need to have winning trade MORE than 50% of the time to profit in the long run. Around 61%. That’s important, because you odds of the stock going up or down after you purchase your option is 50/50 (not 60/40).
If you try the option hedging techniques suggested on other blogs, then you are decreasing your Win:Loss ratio. You get less bang for your buck. If you put everything on a CALL or a PUT, then your Win:Loss ratio is 0.65:1. You could gain $65 or lose $100.
If you split your bet 50/50, then you spend $100 but will only ever gain $50 x 1.65 = $82.50. In other words you will always lose $17.50. Your Win:Loss ratio is -0.175:1. Horrible.
Anywhere in between 100/0 and 50/50 is just a variation. For example, if you spent a total $140 – $100 on a CALL and $40 on a PUT, you will either come out with:
PUT Wins: $40 x 1.65 = $66 (a loss of $74 from the $140 it cost you in option premiums)
-or-
CALL Wins: $100 x 1.65 = $165 (a gain of $25 from the $140 it cost you in option premiums)
Thus you risk losing $74 in order to gain $25. Win:Loss ratio is $25:$74, or approximately 0.33:1.
With a Win:Loss ratio of 0.33:1 you need to win about 75% on an average of ALL YOUR TRADES in order to BREAK EVEN. Win more than 75% of your trades to profit. Good luck with that.
In fact, you have better chances at a casino in terms of odds. At least there it is closers to 51%. Plus, a casino (or anywhere else) would let you place bets bigger than $1500 on one trade. Who is going to get rich when EZTrader.com caps your bets at $1500 bucks? C’mon! This program is obviously aimed at a cash grab from amateurs with a credit cars who can’t do math.
I know of far more simple and better chances of making money. I suggest using one of those instead of EZTrader.com. Zero stars out of ten.
UFirst: $3,500!
NuDay: Less than $300!
