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I received an interesting email from a subscriber in response to last week's article in which I outlined a mistake one of my brokers had made and how they immediately fixed the problem. The subscriber (I'll call him Fred) did not have such a satisfying result. Fred's broker came to visit as he does once each quarter and during the visit, Fred and the broker called the broker's assistant and placed an order to buy some stock and sell (write) covered calls on that stock. Several days later, Fred took a look at his account and found to his dismay that the stock had been purchased but instead of selling the covered calls, the assistant had bought calls. Fred phoned and the assistant said mistakes would be made especially when a lot of trades are made, but Fred does not trade very much. No offer was made to correct the mistake by the assistant. Fred then spoke to the broker who feigned a lack of recollection. So far, Fred should have had a gain of $1,000, but as a result of the broker's error has a loss of $2,000.

Fred went on to relate to me that the broker is about to take the test to become a Certified Financial Planner and that though he knows little about option trading, is going to learn along with Fred. Good Lord!!! This excuse for a broker wants to go through his option learning curve on his client's money. He has already proven his lack of integrity by failing to fix the trade his assistant messed up, and he is likely to be stamped CFP so he can "advise" others what to do. What is a client to do?

I would formally demand that the broker reverse the call trade at his expense. I would then fire him since he has already shown his colors. Allowing him to use my money to learn to trade options is not something I would even consider -- not for a moment. Option trading can be difficult and complex and will involve losses. Let the broker lose his own money, not mine.

If I wanted to trade options, I would not begin by using real money, but rather would paper trade until I knew what I was doing. I would read everything I could get my hands on about option trading and perhaps get some DVDs and even attend seminars once I investigated which companies were reputable. Finally, I would find a broker who already was successfully trading options in his own account and who was willing to take on a neophyte and I would immediately move my account to that new broker.

When I hear stories like Fred's, it makes me wish horse-whipping were still an accepted form of punishment. Fred's broker, in my opinion, does not deserve to be in the business let alone be permitted to call himself a Certified Financial Planner. Guys like him, fortunately, are relatively rare, but they obviously do exist. If you suspect you are hooked by one, run for the nearest exit and make the effort to find yourself a good, honest broker who is knowledgeable in what you want to do.

Good Trading!
Bill Kraft

Mr. Kraft's past articles are posted on our website for your review.

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