Effectiveness of options education using traditional options education tools versus RoToR Payoff Diagrams® education tools

Tuesday 20th November

Effectiveness of options education using

traditional options education tools versus RoToR Payoff Diagrams® education tools

Angelique McInnes , Paul McLaren¨, Abdullahi D. Ahmed§, Joanne Dargusch and Natasja Steenkamp


Abstract for 7th Personal Finance and Investment Symposium 2018

A literature review indicated options is an advanced complex financial product. Some people find learning and investing in options to be complicated and confusing. Consequently, myths abound around options. For example, people consider investing in options as purely speculative, and gambling. Accordingly, many investors, including self-managed superannuation trustees avoid incorporating options into their investment portfolios. Yet, options can form an important component of a well-diversified share portfolio, because among other possible uses, options can protect, like an ‘insurance’ policy, shareholders’ portfolios against downside price risk, while remaining exposed to upside potential. However, these outcomes depends on how the options are utilised. Whilst investing in options does involve a degree of complexity, the way educators teach it complicates its key concepts. Thus, making the effort involved in understanding options for learners far greater than necessary. Additionally, this effort to learn options tends to reinforce those preconceived notions mentioned above.  Consequently, Paul McLaren developed the RoToR Payoff Diagrams® education tool to simplify the understanding of concepts and applications related to options investing. The aim of the proposed study is to assess if a comparative advantage exists with RoToR Payoff Diagrams® education tool compared to the conventional options education tools, found in most Finance, Investment and Options literature, to understand the nature of options. We use numeric quantitative data research methodology to compare the effectiveness of content instruction using both these sets of teaching tools.  The proposed study design consists of selecting a probability random sample of research participants. These participants comprise students from CQUniversity and RMIT University [for the pilot study] and members from the Australian Shareholders Association, several accounting and financial planning associations and companies in the Financial Services Sector [for the main study]. As this is pedagogical research, an experimental design is the main technique employed, which is common for this type of research. The prospective participants will comprise an experimental group and a control group. The experimental group will study options concepts and applications online via the RoToR Payoff Diagrams®, while the control group will study options concepts and applications online using traditional options educational tools. The data collected online from the two groups, via the Moodle learning platform, will comprise demographic information, survey questionnaire to collect qualitative data about perceptions of options, history of participating in options education and trading, as well as the results of a pre- and post-achievement test. Data processing and analysis proposed covers descriptive and inferential statistics using several statistical techniques, including structural equation modelling. Specifically, this research tests hypotheses for statistical significant differences of the experimental group on the dependent variables that the RoToR Payoff Diagrams® is more effective than traditional options tools. Our study focusses specifically on options education as a starting point in several identified options research projects, such as options trading skills, technical analysis and options, options strategy selection, options optimisation strategies, volume at price and expected monetary value of options. This research on options educational tools contributes to further improving public financial literacy, one of the policy objectives of the Australian and other international governments. It also contributes possible solutions to closing the information asymmetry concerning advanced complex financial instruments between financial institutions and the public. Because, share investors with a better understanding of options, are more likely to invest in this financial instrument to hedge their share portfolios against downside risk at the potential cost of the option premium.

Angelique McInnes,  PhD, MCom&Mmt, BCom(Hon), BCom, PDipMmt, AdvDipFS(FP), DipFS(FP), CQUniversity, School of Business and Law, a.mcinnes@cqu.edu.au

¨Paul McLaren, BAgSc(Hons), GdDipAgEco, DipTA(ATAA), CMT, MST, CFTe, Enhance Your Options Pty Ltd®, paulmclaren@enhanceyouroptions.com.au

§ Abdullahi D. Ahmed, PhD, FCCA, RMIT, School of Accounting, abdullahi.ahmed@rmit.edu.au

ᴥ Joanne Dargusch, PhD, CQUniversity, School of Education and the Arts, j.dargusch@cqu.edu.au  

● Natasja Steenkamp, PhD, MCom, BCom(Hon), BCom, CA(SA), Cert in TE, GAICD, CQUniversity, School of Business and Law, n.steenkamp@cqu.edu.au