3 ms·

The efficient market hypothesis says nothing of the sort. Upside and downside with options aren't symmetrical. Unlike when purchasing long positions in stocks,

The efficient market hypothesis says nothing of the sort. Upside and downside with options aren't symmetrical. Unlike when purchasing long positions in stocks, when trading options it's possible to lose many times more money than you initially put in. You also really can't ignore the spreads. Market makers win pretty consistently and everyone else is playing a worse than zero-sum game.

BeeOnRope 6y ago
They are symmetric in the sense that you can both buy and sell options, so whatever payoff curve you get e.g., by buying an option (say unlimited downside and fixed upside) you can sell the same option to get the mirrored outcome (unlimited upside, fixed downside).
brockwhittaker 6y ago
Adjusted for probability, upside and downside are theoretically the same with options. > Unlike when purchasing long positions in stocks, when trading options it's possible to lose many times more money than you initially put in. The converse is also true. It’s entirely possible to almost guarantee yourself a tiny profit and almost no downside risk as it is to create infinite risk. So EMH definitely maps to the options market.
- AlchemistCamp 6y ago
  The market is (mostly) efficient but that doesn't mean that the same number of people end up ahead a certain number of dollars as behind. In a zero-sum game, it's entirely possible and common to have a small number of comparatively large winners and a large number of losers.
mD5pPxMcS6fVWKE 6y ago
It's the other way around. With stocks, you can take loans and trade on margin. If something happens, like very large gap down in the morning, and they can't unwind your position quickly, you could end up in debt. It's a very rare situation in practice. With options, you can only lose what you have invested. Unless you write naked options, which I am almost sure is not allowed on Robinhood.
asdff 6y ago
With options your gains are infinite but your loss is limited to the premium. I don't think you can loose more than you put in, only exactly however much you've put in.
- wcoenen 6y ago
  Someone needs to pay out the "infinite gains", that's the option trader on the other side of the contract.
smabie 6y ago
Most brokers aren't allowing regular people to sell tons naked of puts or calls. For almost all retail option traders, their losses are fixed.
- blaser-waffle 6y ago
  Something something Robinhood box spread something aka the legend of 1r0nyMan See also: https://www.marketwatch.com/story/trader-says-he-has-no-money-at-risk-then-promptly-loses-almost-2000-2019-01-22 https://www.marketwatch.com/story/trader-says-he-has-no-mone...

BeeOnRope 6y ago

They are symmetric in the sense that you can both buy and sell options, so whatever payoff curve you get e.g., by buying an option (say unlimited downside and fixed upside) you can sell the same option to get the mirrored outcome (unlimited upside, fixed downside).

brockwhittaker 6y ago

Adjusted for probability, upside and downside are theoretically the same with options. > Unlike when purchasing long positions in stocks, when trading options it's possible to lose many times more money than you initially put in. The converse is also true. It’s entirely possible to almost guarantee yourself a tiny profit and almost no downside risk as it is to create infinite risk. So EMH definitely maps to the options market.

AlchemistCamp 6y ago
The market is (mostly) efficient but that doesn't mean that the same number of people end up ahead a certain number of dollars as behind. In a zero-sum game, it's entirely possible and common to have a small number of comparatively large winners and a large number of losers.

mD5pPxMcS6fVWKE 6y ago

It's the other way around. With stocks, you can take loans and trade on margin. If something happens, like very large gap down in the morning, and they can't unwind your position quickly, you could end up in debt. It's a very rare situation in practice. With options, you can only lose what you have invested. Unless you write naked options, which I am almost sure is not allowed on Robinhood.

asdff 6y ago

With options your gains are infinite but your loss is limited to the premium. I don't think you can loose more than you put in, only exactly however much you've put in.

wcoenen 6y ago
Someone needs to pay out the "infinite gains", that's the option trader on the other side of the contract.

smabie 6y ago

Most brokers aren't allowing regular people to sell tons naked of puts or calls. For almost all retail option traders, their losses are fixed.

blaser-waffle 6y ago
Something something Robinhood box spread something aka the legend of 1r0nyMan See also: https://www.marketwatch.com/story/trader-says-he-has-no-money-at-risk-then-promptly-loses-almost-2000-2019-01-22 https://www.marketwatch.com/story/trader-says-he-has-no-mone...