Of the vast number of people trading online, only a small percentage are choosing investments outside of stocks or managed products. Options are the most underpenetrated yet profitable asset class for brokers. Long considered a complex product, the question is how to allow more investors to reap the benefits offered by options. Tom Sosnoff of tastytrade moderated the panel exploring what it takes to do it well from viewpoint of education and online/mobile. Panelists included John Carter, Matt Wesche, Patty Schuler and Robert Kmec.
Help clients by explaining options inside and out, until they don’t sound so scary. Once people understand the concept of options, he said, they start to see the benefits of controlled risk versus return, and of investing less capital to get very similar – or even better – results.
One of the challenges with education is that to stay on the right side of securities laws, brokers must be careful about what they say. They have to convey information in a certain way and lay out all the risks. For retail investors, that can make options sound risky. Unfortunately, many investors are avoiding risk right now and, as a consequence, are holding the same positions for far too long.
Brokers can help clients overcome this bias by explaining options inside and out, until they don’t sound so scary.
Breaking Barriers in 3 Steps
- Retail investors need to understand what their options are and how they work. Offer webinars, in-person seminars or an educational trading platform that has the ability to model options based on the different scenarios.
- Ditch the jargon and communicate with your clients in a way that is concise and approachable.
- Lay out all the risks: For retail investors, that can make options sound risky. Unfortunately, many investors are avoiding risk right now and, as a consequence, are holding the same positions for far too long.
Targeting a Younger Demographic
The upcoming generation of investors is primarily 20 to 30-year-olds who are becoming more established in their careers. Trading options could be a natural complement to their investment portfolio as they move forward.
Keep communication with this group short and simple, with zero jargon. The panel agreed offering incentives could help move young investors through education programs.
Being so comfortable with technology, these investors want mobile investment tools and new ideas sent to them by email. They might love the idea of making extra income by trading options, but they won’t have the time or inclination unless their broker makes the process very easy for them.
There’s one other factor that makes younger investors prime candidates for options strategies. They have less capital to invest and, therefore, may be willing to take on more risk to earn more on that capital, or may be open to strategies that lower the cost basis of their trade.
Bringing Equity Traders to Options ~ A Word from Recognia
Many online brokers have reached a growth plateau for their options business, which means investors are missing out on the opportunity to benefit from including options in their portfolio. Investors at large should be aware of the possibilities to lower the cost basis of their investments, to control their risk, or to increase their leverage. With assistive technology by Recognia to help with the calculations and idea generation, and with our unique pairing of education with real-world real-time data... online brokers can open up the world of options to more investors.
Recognia has done this before for technical analysis. And now we are helping to onboard options trader by leveraging our competencies in automating analytics and designing new investor experiences. Our product Options Ideas aims to resolve many of today's broker challenges, by educating users with transparent calculations and providing them personalized, actionable strategies in real-time. Let's work together to build confident investors and stimulate market activity!
Discover how Recognia is helping online brokers reach their clients in the moments that matter. Learn more at www.recognia.com/options