TL;DR
A Reddit user found seemingly cheap long-term options on two pipeline companies, but other users pointed out the common low volatility and risks associated with these types of investments, emphasizing caution and research.
Story
A Reddit user stumbled upon unusually low Implied Volatility (IV) on long-term options (LEAPS) for two pipeline companies, PAA and MPLX. They were excited, thinking they’d found a hidden treasure, like finding a dollar on the sidewalk. These LEAPS were so cheap they seemed like a surefire way to multiply their money. The user bought a few options contracts as a test, wondering why no one else had jumped on this apparent opportunity. But sometimes, things that seem too good to be true usually are. Other Reddit users chimed in, pointing out that low IV on these types of master limited partnerships (MLPs) is quite common. MLPs often prioritize returning cash to investors through dividends rather than rapid price growth. Think of it like a slow and steady tortoise instead of a fast hare. Some users also cautioned about the low liquidity of these options, meaning it might be hard to sell them quickly. One commenter wisely suggested waiting for a dip in the energy sector before buying in. Like waiting for a sale at the grocery store, it’s often better to buy when the price is right. Another reminded everyone to be wary of after-hours pricing, which can be misleading, like trying to buy ice cream from a closed shop. Several highlighted the importance of understanding the underlying businesses before investing, especially in a volatile sector like energy. It’s like knowing the rules of a game before you start playing. The overall sentiment was a mix of curiosity, skepticism, and warnings about potential pitfalls. This story reminds us to be cautious and to do our homework before jumping into any investment, no matter how tempting it seems.
Advice
Don’t let the allure of quick profits blind you to potential risks. Thorough research and understanding the underlying assets are crucial before making any investment decisions, especially in volatile sectors like energy.