Schaeffer's Investment Research Turns 40: An Interview with Bernie Schaeffer

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

Schaeffer's Investment Research, the longest-running options trade alert provider globally, is celebrating its 40th anniversary this year.

In 1981, the founder and CEO, Bernie Schaeffer, engaged a fledgling options industry with his visionary approaches to trading options.

Today, Mr. Schaeffer leads investors toward profit-making strategies with a combination of analytics, commentary, education and well-timed trades. He has won several awards and accolades over the years:

• Recipient of the Traders' Library "Trader's Hall of Fame" award
• Recipient of the Market Technicians Association "Best of the Best" award
• Consistently ranked among the top 10 marker times by Timer Digest
• Three-time winner of the Wall Street Journal stock-picking contest
• Named "Guru of the Year" by TheStreet

Photo: Bernie Schaeffer

Mr. Schaeffer's unique approach, encapsulated in his award-winning “Expectational Analysis,”has made him one of the most respected market analysts in the world. His independence has earned him and his staff at Schaeffer's Investment Research a trusted position in the market, helping subscribers trade more confidently and make money in all market conditions.

Benzinga has engaged in an interview with Mr. Schaeffer as he reflects on the 40-year milestone.

As Schaeffer’s Investment Research celebrates its 40th anniversary, what are some key decisions that have led to its success?

As a company that started out at the forefront of the options trading industry, I had a major decision to make from the get-go: Should we offer stock trading picks in addition to options trading picks (the safe route), or should we stay the path going all-in with an options-centric focus (the risky route)?

From that moment, I decided to be the best options trading publisher in the world and focus exclusively on identifying and timing options trades for our customers. At the time of the decision, options were just taking off and stocks had been around for a while. Stock-trading newsletters in our industry were established comfortably. But I've never been one for swinging for base hits. I'm always seeking the next grand slam — in business and trading.

You got into options trading when it wasn’t mainstream. At a time when everyone was talking about stocks, what led to your fascination for options?

Options are incredibly attractive to traders with this high risk and high reward mentality. Your profits are uncapped, while your downside risk is limited to your initial investment. Options play with the power of convexity, creating an unlimited upside potential in every option buy. All trading comes with risk, so why take on the risk without major potential returns?

You published The Option Advisor, the first newsletter to focus entirely on options trading back in 1981 and are currently the longest-running options trade alert provider in the world. How different was options trading back then to how it is now?

We are 100% options because it offers 100% more opportunity than just trading stocks, and the crazy growth rate for options trading supports that more and more traders realize this every year.

There were 109,000 equities in 1981 with options available and zero non-equity options. On a daily basis, back in '81, 432,000 options contracts changed hands. In 2021, there are now nearly 3.8 million equities with options available and 14,000 non-equity options. This year, 39 million options contracts change hands — on average — every day.

A record was set in January 2021 for all-time options trading volume in a single month, with 825 million options contracts. Additionally, the single-day options trading volume record was also set in the first month of this year, with 60 million options contracts changing hands on January 27. When I took the leap of faith in the options industry back in '81, I truly leaped into a field of exponential growth over the next 40 years.

There has been explosive growth in options trading in the recent past. Why do you think that is?

I believe that two major factors have helped drive this explosive growth in options trading. Today's investor is increasingly aware of the benefits of adding an options trading component to their investment arsenal. Most investors are attracted to options because they can be used as a cheap, leveraged vehicle to profit handsomely from the movement in equity.

But, options can also be used to protect a portfolio from a major decrease in value or provide additional income. These more conservative uses are attracting more and more attention in an increasingly nervous investment environment.

Second, the equity options industry has moved out of the back rooms and into the mainstream. It wasn't too long ago that equity options transactions were performed for investors by a small group of obscure firms without the benefit of an options exchange.

As a result, options tended to be very expensive. Compounding this problem was the fact that the options buyer could not take immediate advantage of the changes in the value of their contract, as its terms could not be exercised until the day the option expired. It is not surprising that the tiny options industry sported something of an outlaw reputation.

Today, options are traded on 12 exchanges in virtually the same manner that stocks are traded on stock exchanges. Plus, options investors have protections analogous to those traditionally enjoyed by stock investors.

And options are now fully fungible, which simply means that option buyers can turn around and sell their contract on the options exchange at any time till the date that it expires.

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.