Are Stock and Option Pickers (Advisory Services) Any Good?
For those who are not familiar with stock and option advisory services, also called pickers, these are online services that offer to pick stock or options for clients based on the clients’ given investment goals. I mention only stocks or options in this article since these are my investment specialties. But I’m sure there are also mutual fund pickers, bond pickers and pickers for futures, forex, commodities, indexes and others.
For this article I will only be talking about stock and option pickers. While they basically offer the service of picking stocks or options according to the investment objectives of their client they prefer to call themselves advisory services rather than pickers. In effect they do serve the function of advising the client what stock or option to buy or sell.
They are not to be confused with licensed financial advisers.
Licensed financial advisers are licensed professionals who are regulated by local or national governmental agencies and/or are certified practitioners. Investopedia.com defines financial advisers as:
“A financial advisor or adviser provides financial advice or guidance to customers for compensation. Financial advisors can provide many different services, such as investment management, income tax preparation and estate planning. They must carry the Series 65 license to conduct business with the public; a wide variety of licenses are available for the services provided by a financial advisor.”
A financial adviser therefore offers its client a package of services whereas a picker offers only the service of picking a particular stock or option on a particular industry or segment of the stock market. For instance, an investor may wish to find a stock to buy in the oil drilling industry. He goes online and searches for stock pickers or advisory services that specialize in recommending stocks in the oil drilling industry. In the same way the investor who wishes to invest in banking stocks can find stock pickers specializing in banking stocks.
In the case of options, since there is a multitude of strategies employed in trading options, option pickers do not normally specialize in any industry but rather more on the trading system being employed by the advisory service. For instance there are advisory services that specialize in selecting options for straight buying or selling of options. This is also known as directional option buying or selling. This option strategy is called going long (for buyers) or going short (for sellers). Another picker may specialize in selecting options for covered call selling, another may use spread trading, or any of the dozens of other trading systems available in the options business.
The Role of The Advisory Service
What exactly is the role of the so-called advisory service? In short they are supposed to find and recommend the right stock or option that will provide the desired result sought by the client.
In what way do they claim to do a better job of selecting winners?
They claim to have all the necessary technology such as advanced computer software, algorithms and deep research materials that enable them to do a much better job of locating the right stocks and options. Admittedly they do not claim to be always right in their selections, only that they will do a better job of finding the best potentials most of the time.
Exercise Caution in Selecting Advisory Services
If you choose to use a stock or option advisory service you must be extremely careful in your choice. Pickers, or advisory services, can be very deceiving in their online presentations to lure prospective clients to their services. Many, in fact most of them, exaggerate their successful trades when they present their track records or performance results. They are always quiet on the number of unsuccessful trades. They employ various ways to present a very favorable track record with the sole purpose of deceiving the visitor into believing their numbers. Many don’t even show track records on their websites and these, in my opinion, are the ones that should be avoided immediately in your search for an advisory service. That said, it does happen that a picker may in fact be a good one even if it shows no track record in its website and the only way to know about them is by word of mouth from someone who has already tried them successfully. Don’t get me wrong. There are a few that really do render a valuable service. It’s just a matter of finding them.
So, how does one go about finding a good picker? I’m afraid it’s a hit or miss system. For stocks you can google ‘stock picking service’ or ‘stock advisory service’ and you will come up with quite a selection. For options you can do the same thing. Google ‘stock options picking service’ or ‘stock options advisory service’.
Since my specialty is stock options I may be a little more help in this area. In January of 2017 I decided to do a study of the various option picking services to see which ones were worth subscribing to. Using google to do my search I found 16 online sites worth investigating. There were actually a lot more than just 16 but only 16 were worth exploring in my opinion. After studying each and every one of them I narrowed down my selection to 11 pickers. I then subscribed to the services of these eleven. Shown below are the results of my trades with these eleven pickers.
The trades column are the number of trades I did with each one and the following columns show the number of winning and losing trades as well as the net dollar gain or loss resulting from the total trades for that picker. In order to make the comparisons fair and meaningful I invested the same amount - $1,000 - on each trade.
As you can see from the table, except for two pickers, all listed pickers delivered losses. Looking at the numbers, OptionAlarm is the clear winner in the contest with Steady Options coming in second place. Steady Options offers a very conservative and safe trading system but is difficult to follow if you are just following option picks. They require a deep knowledge of the system they use and in most cases leaves it up to the client to decide when and how to enter and exit their selected options. The pickers that show little trading activity I abandoned early in my study because they just didn’t show much potential and their investing method was not to my liking.
PowerOpt.com had more winning trades than losers yet the net dollar result was a loss. This is because their losers were much bigger than their winners thus ending negatively. On the other hand, you will note that Steady Options had more losing trades than winners yet ended positively with a net dollar profit. In this case this picker chose options that yielded larger winnings and smaller losers.
MCTO and OptionGenius also show good performance results but the latter’s trading may be a bit more complex for the newbie option trader. OptionGenius’ system is a very safe one for the conservative trader but requires more knowledge of options.
I haven’t seen a similar study of actual trading performances by stock pickers. But looking at their various online sites their presentations run along parallel lines to those of option pickers. Many are both stock and option pickers at the same time.
As I said earlier, there are good and bad stock and option pickers, unfortunately the bad ones seem to outnumber the good ones by a large margin. For an investor who does not have the time to do detailed research on which stocks and options to invest in, the right picker can offer a valuable service in leading him to the right selections.
Any and all information pertaining to trading stocks and options including examples using actual securities and price data, are strictly for illustrative and educational purposes only and should not be considered as complete, precise, or current. The writer is not a stockbroker and as such does not endorse, recommend or solicit to buy or sell securities. Consult the appropriate professional advisor for more complete and current information. Options involve risks and are not suitable for everyone.
© 2018 Daniel Mollat