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> For a classic example, just look at /r/wallstreetbets -- young people are frustrated because there's no end to this tunnel That's a bad example. By many meas
by an_opabinia 6y ago
> For a classic example, just look at /r/wallstreetbets -- young people are frustrated because there's no end to this tunnel
That's a bad example. By many measures retail investors have outperformed institutional investors since March. The simple reason is that options have a built in exit strategy, the thing that's missing when most people lose in scams - including Ponzi schemes!
On the flip side, why then do they outperform? High risk, high reward. Opportunities where you lose your entire principle, like out of the money options, turned out to be wildly underpriced, simply because institutions never buy them.
Anyway, I get it, those people are stupid. But they made money.
- cbozeman 6y ago> Anyway, I get it, those people are stupid. But they made money. They are absolutely not stupid. Everything they're doing is entirely rational. It doesn't seem that way, because clearly you're not in the same circumstances as they are. Neither am I. However, I completely understand it. If you're 22-25, not married, and have far more liabilities than asset, you have no reason not to trade on high margin with an options play and try to turn $50,000 into $2 million or more. If you lose the $50,000, you can recover. If you end up horribly in debt, you file for bankruptcy and move on. Given the current state of affairs, its completely understandable.
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- coliveira 6y agoIf you think OTM options are underpriced you're in for a rude awakening. Sure, you can make lots of money with OTMOs, but don't expect to do this regularly.
- micael_dias 6y agoTo be fair he didn't they are. He said they were, which might have been the case in March after the corona crash.
- ra7 6y agoAfter the March crash, volatility was really high. So I doubt even far OTM options were that cheaper back then.
- sooheon 6y ago> By many measures retail investors have outperformed institutional investors since March Source please?
- dvt 6y ago> That's a bad example I don't think it's a bad example, because if you spend some time on that subreddit, you'll quickly realize people are literally gambling with their life savings. In no small part due to disillusionment and cynicism with the current economic realities -- we can no longer work at a stable company, marry a pretty wife, have a couple of kids, retire 40 years later, and live off of a plump 401k.
- v64 6y ago> you'll quickly realize people are literally gambling with their life savings Gambling, yes. But the stock market is not a ponzi scheme.
- CharlesW 6y ago> But the stock market is not a ponzi scheme. That depends on who you ask. https://www.hughescapital.com/the-stock-market-is-a-ponzi-scheme/ https://www.hughescapital.com/the-stock-market-is-a-ponzi-sc...
- dmoy 6y agoFrom that link: > In 2010, its stock price was $20 and by 2017 had risen to $380 a share, yet Tesla reported a loss of $4.3 billion. How is this possible? The only way to explain this bizarre scenario is to recognize that the market is not efficient I will pass on buying/reading that book based on this excerpt alone. I am far away from a tesla fan (I actively encourage my friends/family to not buy teslas, or invest in tesla, etc), but saying "the only way to explain this" is pretty unbelievable.
- ZephyrBlu 6y agoHow would you explain it then? I don't believe Tesla would be valued so highly or fluctuate so violently if the market was actually efficient.
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- nradov 6y agoIt's hard to believe that OTM options are wildly underpriced. Institutional investors might be unable to trade them but there are plenty of hedge funds with no such restrictions. 0
- LatteLazy 6y agoNot trying to sound aggy but... Do you have a source for retail investors out performing institutions since march? I'd like to know more about this and I haven't heard anything but I've been pretty disconnected from news so excuse my ignorance please!
- dannyw 6y agoThere’s no credible way to precisely define this, especially because success of investing is not purely based on returns of a half year horizon or so.
- nish1500 6y agoTrading on the stock market (by and large) doesn't create value. If someone makes a killing, it's because someone lost it. You hear about those who make money - because it's the story you 'want' to hear. People don't understand how money comes from value created, in the long run. People think they can game the system. Everyone feels they are not a part of the average.
- friedman23 6y ago>If someone makes a killing, it's because someone lost it Not true, companies can create value, that value is reflected in the stock price. The economy is not zero sum. Did all the people that got rich off of apple, google, microsoft, nvidia, etc get rich because someone else lost money?
- nish1500 6y agoExactly! Which is why my comment talks about 'Trading' not 'Investing'. https://www.investopedia.com/ask/answers/12/difference-investing-trading.asp https://www.investopedia.com/ask/answers/12/difference-inves...
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- rootshelled 6y agoThose companies got value via selling products with a margin to their customers. So, technically their customers lost money for those companies to gain money. Not that there is anything wrong with that. Just pointing out how I think your logic is flawed.
- anonymouse008 6y agoEh, depends on how you defined ‘lost’ a lot of money — Many of the calls that have hit recently only capped out people’s gains - so yes there was an opportunity cost to that lost, but people didn’t literally lose invested capital. Not as much money as you think has gone into the red this year - even on the way down.
- ll931110 6y agoYou can win in a single year or two. But winning year over year for 10 years? That's not possible, unless you are .. wait for it .. being part of them?
- gruez 6y ago>That's a bad example. By many measures retail investors have outperformed institutional investors since March. The average retail investor might have outperformed institutional investors, but it's a leap to suggest that wsb outperformed institutional investors. Foe one, the average retail investor isn't buying otm options like wsb users are. > The simple reason is that options have a built in exit strategy, the thing that's missing when most people lose in scams - including Ponzi schemes! Not really? Options can have their value go to zero if they remain unexercised, just like if a ponzi scheme goes bust.
- ek750 6y ago>Not really? Options can have their value go to zero if they remain unexercised true. but as a person who plays with options, I should point out that when you buy an option contract, you don't want it to expire worthless. However if you are an options seller, that is the best possible outcome.