5 ms·

What's wrong with removing the jargon from stock trading?

TheHypnotist 9y ago
The trouble is that Robinhood has a very low barrier of entry and now you have laymen who, if they don't understand basic finance terms, likely do not understand the fundamentals of trading options.
- truthteller11 9y ago
  Like the javascript in the programming field? Go figure.
  - perl4ever 9y ago
    If you want to write programs without really having a clue, that's fine and educational for most purposes, just not if you're hacking your personal vehicle, pacemaker, or nuclear reactor.
    - truthteller11 9y ago
      If someone want to burn all their personal money, so what? So basically: At least they will not be programming insecure things, even websites that leak millions of records every week by "thinking they know programming". Too much double standard: "Lets make programming accessible so everyone can become code monkeys without clue, but do not touch my precious stock trading terms. We do not want anyone trying to get rich without a clue."
      - contravariant 9y ago
        This is like arguing against literacy because gambling has legal restrictions.
- jbob2000 9y ago
  The terms are out dated. I disagree with "up" and "down" because that is even more wrong (I'm up for buying that stock like I'm up for a game of chess, and I'm down to sell these like I'm down to go to the movies? Is that what they mean? Way too colloquial for my liking). Just be more descriptive instead of trying to re-purpose other words. A "call" should be "Buy on Date", abbreviated to BOD, and a put should be "Sell on Date", or SOD. You don't even need to google what the means, you can immediately understand it when you read it. The medical field is going through a similar renaming. Doctors in the early stages of modern medicine would discover something and name it after themselves. Oppenheimer Test? Wtf is that you egotistical douche, just call it the tibia tickle test.
  - perl4ever 9y ago
    I don't understand your terms, though. You can buy or sell calls and puts on any date prior to expiration. Simplification[1] is in the eye of the beholder. [1] e.g. http://grammar.ccc.commnet.edu/grammar/twain.htm http://grammar.ccc.commnet.edu/grammar/twain.htm
    - TheCoelacanth 9y ago
      Depends on the option. "American options" can be exercised at any time before the expiration, "European options" can only be exercised at the end.
      - perl4ever 9y ago
        I don't see how that distinction relates to my comment. I wrote "buy or sell", not "exercise". And the parent comment didn't mention exercise either. However, your comment is definitely more evidence that you can't make options self-explanatory by renaming them.
        TheCoelacanth 9y ago
        The comment you replied to was clearly referring to exercising options rather than buying or selling them. An American call option would be an option to buy something on or before a certain date. A European put option would be an option to sell something on a certain date.
chimeracoder 9y ago
> What's wrong with removing the jargon from stock trading? Because you're removing all specificity from it at the same time. If you show me that screenshot without the text in the tweet, I'd have no idea what action it actually refers to. It could mean you're buying or selling an option. Or it could mean you're buying or selling a stock (potentially short selling). It could even mean you're buying stock on margin. In fact, buying a call option is probably not even the most reasonable interpretation of "I think that this stock will go up", because purchasing the stock outright would be the default workflow. Especially since it doesn't even specify a timeline for the option[0]! Am I betting that it will go up today? Next week? Next month? Next year? There is literally no way to tell from that display. And quite honestly: if you know about the distinction between buying equity and buying a call option, you will care about the difference between the two. And if you don't know about the distinction, you have no business trading options, because you'll undoubtedly screw yourself over. [0] Timelines matter less than you'd think, because you can sell an option early to recoup its value and call options are always worth more alive than dead[1]. But it still matters, because buying an option that expires in a month is a very different bet from buying an option that expires in a year. [1] In other words, you never exercise an option early even in markets where it's permitted.
- perl4ever 9y ago
  I thought when you were approved for option trading you had to read and at least claim you understood "the Characteristics & Risks of Standardized Options". I didn't even know it was legal to simplify things to this extent.
  - perl4ever 9y ago
    I looked at the Robin Hood link posted elsewhere in this thread, and it links to "the Characteristics & Risks of Standardized Options" but it presents it as optional. Elsewhere[1] it is stated "Prior to buying or selling an option, investors must read a copy" (emphasis mine). Of course, after reading it you should be sure you understand it, but that's probably hopeless... [1]https://www.theocc.com/about/publications/character-risks.jsp https://www.theocc.com/about/publications/character-risks.js...
kgwgk 9y ago
They could also lobby to legalize bucket shops again and remove the stock trading part altogether.
totalZero 9y ago
It's wrong because we don't want to simplify concepts to a level beneath the minimum information needed for understanding them. Call and Put specifically refer to what happens on maturity or exercise of the contract. You either call the stock from the counterparty, or you put it to the counterparty. The only reason we don't refer to them as "buy" and "sell" options is because you can both buy and sell either of them. Nobody wants to shout into a phone "buy 10,000 AAPL Jan19 100 sells," and hope that the broker on the floor gets it right. In actual fact, a call doesn't just represent "I think it will go up." Nor does the holder of a call always make money when the stock appreciates in value. They are volatility products, and they decay with time. If you buy a put before a catalyst with a 9% implied move, and the stock drops 2%, you probably just lost money on event theta as the vol resets. How do you explain that a down option can lose money on a down move? Giving a false sense of simplicity probably will tempt more folks into making losing trades on options.
- dopamean 9y ago
  How many people who trade options actually call up the shares at the end or vice versa? I'd imagine very few and even fewer on Robinhood's platform. I think a level of abstraction that clarifies things is fine.
  - totalZero 9y ago
    > How many people who trade options actually call up the shares at the end or vice versa? In-the-money options are automatically exercised by OCC at maturity, unless the holder contacts them and tells them to do otherwise. American listed single-stock options are physically settled, meaning that you either exercise them for stock, or you don't exercise them at all. If you're short in-the-money options, you generally assume they will be exercised. Also, if you have a deep in-the-money call option on a stock that pays a dividend, you may need to exercise it to capture the dividend. You will lose money if you fail to exercise. Option exercises are sometimes contrarily decided (that is, not exercised when they are in the money) if the holder of a very large option position has a hedge that cancels out his stock delivery. In practice, this is infrequent, and you usually only do it when the market impact of trading out of your residual shares will lose more money than the intrinsic value you forgo by failing to exercise your options. Robinhood will liquidate options prior to maturity if the holding account cannot afford to exercise them, but (A) this is done at a loss and (B) this will not happen if the account has enough capital to perform the option exercise. "Up options" and "down options" are not a clarification nor a level of abstraction. Rather, they are a misnomer that suggests a false level of simplicity.
austenallred 9y ago
Options are relatively complex instruments with an enormous amount of risk involved. If you can’t understsnd the difference between “call” and “put” will you understand strike price and expiration date and that you will literally lose 100% of your money if an option ends up out of the money on the expiration date? I doubt it. For example, Robinhood calls Facebook July puts that are 10% out of the money “medium risk.” In other words if Facebook doesn’t go up 10% by July you lose all your money. Options are very high risk, high reward plays. Making that more accessible is... risky.

The trouble is that Robinhood has a very low barrier of entry and now you have laymen who, if they don't understand basic finance terms, likely do not understand the fundamentals of trading options.

truthteller11 9y ago
Like the javascript in the programming field? Go figure.
- perl4ever 9y ago
  If you want to write programs without really having a clue, that's fine and educational for most purposes, just not if you're hacking your personal vehicle, pacemaker, or nuclear reactor.
  - truthteller11 9y ago
    If someone want to burn all their personal money, so what? So basically: At least they will not be programming insecure things, even websites that leak millions of records every week by "thinking they know programming". Too much double standard: "Lets make programming accessible so everyone can become code monkeys without clue, but do not touch my precious stock trading terms. We do not want anyone trying to get rich without a clue."
    - contravariant 9y ago
      This is like arguing against literacy because gambling has legal restrictions.
jbob2000 9y ago
The terms are out dated. I disagree with "up" and "down" because that is even more wrong (I'm up for buying that stock like I'm up for a game of chess, and I'm down to sell these like I'm down to go to the movies? Is that what they mean? Way too colloquial for my liking). Just be more descriptive instead of trying to re-purpose other words. A "call" should be "Buy on Date", abbreviated to BOD, and a put should be "Sell on Date", or SOD. You don't even need to google what the means, you can immediately understand it when you read it. The medical field is going through a similar renaming. Doctors in the early stages of modern medicine would discover something and name it after themselves. Oppenheimer Test? Wtf is that you egotistical douche, just call it the tibia tickle test.
- perl4ever 9y ago
  I don't understand your terms, though. You can buy or sell calls and puts on any date prior to expiration. Simplification[1] is in the eye of the beholder. [1] e.g. http://grammar.ccc.commnet.edu/grammar/twain.htm http://grammar.ccc.commnet.edu/grammar/twain.htm
  - TheCoelacanth 9y ago
    Depends on the option. "American options" can be exercised at any time before the expiration, "European options" can only be exercised at the end.
    - perl4ever 9y ago
      I don't see how that distinction relates to my comment. I wrote "buy or sell", not "exercise". And the parent comment didn't mention exercise either. However, your comment is definitely more evidence that you can't make options self-explanatory by renaming them.
      - TheCoelacanth 9y ago
        The comment you replied to was clearly referring to exercising options rather than buying or selling them. An American call option would be an option to buy something on or before a certain date. A European put option would be an option to sell something on a certain date.

chimeracoder 9y ago

> What's wrong with removing the jargon from stock trading? Because you're removing all specificity from it at the same time. If you show me that screenshot without the text in the tweet, I'd have no idea what action it actually refers to. It could mean you're buying or selling an option. Or it could mean you're buying or selling a stock (potentially short selling). It could even mean you're buying stock on margin. In fact, buying a call option is probably not even the most reasonable interpretation of "I think that this stock will go up", because purchasing the stock outright would be the default workflow. Especially since it doesn't even specify a timeline for the option[0]! Am I betting that it will go up today? Next week? Next month? Next year? There is literally no way to tell from that display. And quite honestly: if you know about the distinction between buying equity and buying a call option, you will care about the difference between the two. And if you don't know about the distinction, you have no business trading options, because you'll undoubtedly screw yourself over. [0] Timelines matter less than you'd think, because you can sell an option early to recoup its value and call options are always worth more alive than dead[1]. But it still matters, because buying an option that expires in a month is a very different bet from buying an option that expires in a year. [1] In other words, you never exercise an option early even in markets where it's permitted.

perl4ever 9y ago
I thought when you were approved for option trading you had to read and at least claim you understood "the Characteristics & Risks of Standardized Options". I didn't even know it was legal to simplify things to this extent.
- perl4ever 9y ago
  I looked at the Robin Hood link posted elsewhere in this thread, and it links to "the Characteristics & Risks of Standardized Options" but it presents it as optional. Elsewhere[1] it is stated "Prior to buying or selling an option, investors must read a copy" (emphasis mine). Of course, after reading it you should be sure you understand it, but that's probably hopeless... [1]https://www.theocc.com/about/publications/character-risks.jsp https://www.theocc.com/about/publications/character-risks.js...

kgwgk 9y ago

They could also lobby to legalize bucket shops again and remove the stock trading part altogether.

totalZero 9y ago

It's wrong because we don't want to simplify concepts to a level beneath the minimum information needed for understanding them. Call and Put specifically refer to what happens on maturity or exercise of the contract. You either call the stock from the counterparty, or you put it to the counterparty. The only reason we don't refer to them as "buy" and "sell" options is because you can both buy and sell either of them. Nobody wants to shout into a phone "buy 10,000 AAPL Jan19 100 sells," and hope that the broker on the floor gets it right. In actual fact, a call doesn't just represent "I think it will go up." Nor does the holder of a call always make money when the stock appreciates in value. They are volatility products, and they decay with time. If you buy a put before a catalyst with a 9% implied move, and the stock drops 2%, you probably just lost money on event theta as the vol resets. How do you explain that a down option can lose money on a down move? Giving a false sense of simplicity probably will tempt more folks into making losing trades on options.

dopamean 9y ago
How many people who trade options actually call up the shares at the end or vice versa? I'd imagine very few and even fewer on Robinhood's platform. I think a level of abstraction that clarifies things is fine.
- totalZero 9y ago
  > How many people who trade options actually call up the shares at the end or vice versa? In-the-money options are automatically exercised by OCC at maturity, unless the holder contacts them and tells them to do otherwise. American listed single-stock options are physically settled, meaning that you either exercise them for stock, or you don't exercise them at all. If you're short in-the-money options, you generally assume they will be exercised. Also, if you have a deep in-the-money call option on a stock that pays a dividend, you may need to exercise it to capture the dividend. You will lose money if you fail to exercise. Option exercises are sometimes contrarily decided (that is, not exercised when they are in the money) if the holder of a very large option position has a hedge that cancels out his stock delivery. In practice, this is infrequent, and you usually only do it when the market impact of trading out of your residual shares will lose more money than the intrinsic value you forgo by failing to exercise your options. Robinhood will liquidate options prior to maturity if the holding account cannot afford to exercise them, but (A) this is done at a loss and (B) this will not happen if the account has enough capital to perform the option exercise. "Up options" and "down options" are not a clarification nor a level of abstraction. Rather, they are a misnomer that suggests a false level of simplicity.

austenallred 9y ago

Options are relatively complex instruments with an enormous amount of risk involved. If you can’t understsnd the difference between “call” and “put” will you understand strike price and expiration date and that you will literally lose 100% of your money if an option ends up out of the money on the expiration date? I doubt it. For example, Robinhood calls Facebook July puts that are 10% out of the money “medium risk.” In other words if Facebook doesn’t go up 10% by July you lose all your money. Options are very high risk, high reward plays. Making that more accessible is... risky.