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I had this casino-going coworker. She and her husband used to go to Atlantic City quite often. Now she's messing around with options trading on Robinhood. I ca

• andrewzah 6y ago
  Options trading is literally gambling, so this would be unsurprising. Robinhood made it much easier for people to get into.
  • chii 6y ago
    > Options trading is literally gambling better than the casinos getting the money imho.
    • viklove 6y ago
      Citadel is essentially a casino
  • tryptophan 6y ago
    No it is not 'literally gambling'. They have a legitimate purpose for risk management. Ofcourse if you know nothing about risk management, options, or finance in general, you can just use them as a gambling instrument. Robinhood and others have been irresponsibly pushing options onto clueless individuals. I'm concerned this will lead to more regulation, taking away this option for us commoners and leaving it to only the 'responsible educated betters' who run hedge funds and such.
    • aphextron 6y ago
      >"They have a legitimate purpose for risk management." Of course they do. And those little plastic roses they sell in a glass tube at the gas station also have a legitimate purpose. But we all know that's not why they're being sold. The vast majority of retail options trading is just straight up degenerate gambling. Especially in communities like WSB. And honestly, is there anything wrong with that? It's a much more equitable situation than lottery tickets or a roullette wheel.
      • totalZero 6y ago
        > But we all know that's not why they're being sold. This line of suspicious thinking doesn't make sense to me. Options can be used as a speculative instrument, or for one of a number of other purposes (yield enhancement, insurance, volatility hedging, stock replacement, arbitrage, commodity market access, even multi-year investment), but the thing that makes options trading dissimilar from gambling is the simple fact that you are not playing a game of pure chance. There is a large element of uncertainty in the public markets but they are driven by information, and that is why some participants are able to make money. If people want to blind themselves to information, then sure, you can call it a game of chance. But if I'm analyzing vol and backing out information implied by pricing in order to take directional views around underpriced catalysts for assets that only a handful of people really have the skills to evaluate in that way, am I gambling or am I speculating? Some may say "all speculation is gambling" but I see a difference between those two activities. It would also be risky to rent drilling equipment and prospect for oil, but there is a science and method to wildcatting and few people would refer to it as gambling in the sense of playing slots or roulette. Personally I also believe that people who play card games based on probabilistic reasoning are doing more than just gambling. In a sense, that's what casinos do. It's business at the very least, a form of work that in casinos provides a profit opportunity from entertainment and in the public markets provides a profit opportunity from contributing to the information efficiency of financial instruments.
      • bambataa 6y ago
        Please tell me more about these roses, you’ve piqued my interest!
    • andrewzah 6y ago
      Of course they have a legitimate purpose. That doesn't mean the market is rational, etc. You can know all about risk management, etc, but there is no guaranteed winning strategy. Because options trading is gambling.
      • fractionalhare 6y ago
        If your trading strategy has a positive expected value, "gambling" ceases to be a useful descriptor for it. As I said elsewhere, calling everything gambling just because it isn't literally guaranteed is reductive and unproductive.
        • runarberg 6y ago
          Not everything. This subthread is literally about options trading. Lets bring the Wikipedia definition of gambling into focus: > Gambling (also known as betting) is the wagering of money or something of value (referred to as "the stakes") on an event with an uncertain outcome, with the primary intent of winning money or material goods. Seems like a fit to me. Even if the expected outcome is positive, it is still uncertain, hence it is gambling. If you go to the casino and count cards at the black jack table, you have a positive expected outcome, however you are still gambling.
          • fractionalhare 6y ago
            I disagree. If you open a probability textbook they'll recite the same thing. But in actual colloquial usage, gambling usually implies a lack of statistical edge and rigor. If you tell people your uncle goes to Vegas every weekend to gamble, they will have a markedly different reaction than if you tell them he goes and counts cards every weekend.
            • runarberg 6y ago
              Counting cards is a better analogy then I originally anticipated. You can only expect a positive outcome by counting cards if you have a high starting capital. This means that counting cards is a different game for rich folks then for poor folks. For poor folks to have a positive expected outcome they need to take out a big loan before they start. For most people this is options trading. Only for the already rich can you expect a positive return of investment. The poorer folks would need to take out a loan (often this is a second mortgage) to have a positive expected value. If you tell people your uncle just took out a huge loan to go to Vegas to count cards, they will have a different reaction still.
  • cashewchoo 6y ago
    I'd argue that options trading is worse than gambling. At least the one-armed bandit only gives the house a slight statistical edge. Option traders - real ones, mind you - are sophisticated armies of statistics PhD's. I suspect their statistical advantage over Robinhood option warriors is probably a lot more than "slight".
    • totalZero 6y ago
      > Option traders - real ones, mind you - are sophisticated armies of statistics PhD's Oh? I guess they forgot to ask me for my PhD at the door when I came to work for the first time.
      • fractionalhare 6y ago
        Yeah, lol. Love reading all these myths about the finance industry regurgitated on HN. Most options traders I know don't have a PhD. Of the subset that do, it's usually more multidisciplinary than just stats because there's a lot more to derivatives pricing than just probability theory. Masters degrees are really common though. Reading HN, you'd think every quant trading firm had the exact same culture and hiring practices as RenTech.
      • jawilson2 6y ago
        My team of traders, quants, and devs is over 50% PhDs, so it isn't that far off. The point is that we have an army of people very good at math working 10+ hours per day analyzing volatility, backtesting decades of data, and shaving microseconds off of execution time. Someone playing with options on Robinhood isn't in a different league, they are playing a different game.
        • totalZero 6y ago
          > My team of traders, quants, and devs is over 50% PhDs, so it isn't that far off. Depends what segment of the industry you call home, but I can think of several options market-making desks where no trader has a PhD, as well as several hedge fund traders and founders that don't have PhDs and trade options frequently or as their core competency. "Good at math" doesn't require a PhD; I have some college friends who went on to do engineering PhDs at top research institutions, and they suck at the kind of fluid/heat math and probabilistic analysis that option traders think about. I have worked with PhD mathematicians who were good quants but lacked the stomach and mental clarity to run risk, and one who was so caught up in his math that he needed others to remind him about basic realities like earnings reports for his own positions. That last guy tried to start his own hedge fund and failed. Outside of a few particular research advisors and fields of study, most of the math that you need to know to trade vol is faster to learn by reading papers and explanations on the internet than by studying for a PhD. Ultimately what makes someone a good or bad trader is based more upon trade and strategy ideation, backtesting/validation, position sizing, etc, and the P&L is the scoreboard. Take a famous contemporary vol trader like Harsh Padia (or whatever other person you choose) and lock him in a room for a year with Excel, Robinhood, cable internet, a phone line, and a few grand, and he'll still find a way to make money. > Someone playing with options on Robinhood isn't in a different league, they are playing a different game. If this is true (I believe it is not) then it's yet another data point suggesting that the market is rigged against certain participants for the enrichment of other participants. Lest you think I'm being hyperbolical, I give you the example of that kid[0] who figured out that HFTs front-run large CME orders and placed his own spoof orders so that he would be able to trade the reversion. On the HFT side, you have many of these "traders, quants, and devs...over 50% PhDs" but their business model may well depend upon front-running new trades right when they posts to the order book, but before the higher-latency public can receive the information. Regulators protect the HFTs by treating the order book as public information, while treating retail practices that defeat their strategies as unlawful. How much of that depends on a PhD? [0] https://www.bbc.com/news/explainers-51265169 https://www.bbc.com/news/explainers-51265169
  • gt565k 6y ago
    Long call options 6+ months are a great way to make money if you believe the stock will increase. Especially in growth sectors like cannabis, long calls can make you some significant money.
    • fractionalhare 6y ago
      On a risk-adjusted basis, without an actual edge helping you determine which options to buy, this will not outperform SPY.
      • tedunangst 6y ago
        So is that the answer to everything? If you want more risk, just lever up 4x on the S&P? Why do other stocks even exist?
        • fractionalhare 6y ago
          It probably seems cavalier or maybe dismissive, but yes. If most people want to take on more risk, I'd suggest just levering up SPY. Without an edge buying options is just going to be beta anyway, but costlier and with extra steps. Take away the discretion unless you're provably excellent at it.
    • caymanjim 6y ago
      You've been lucky so far. Ask yourself if you actually know what the value of the options you're buying is, why they're priced where they are, what the fundamentals of the company are, what the risks are. If you're not an expert, it's nothing more than gambling. That's ok, gamble if you want to. I do. But don't pretend it's investing, and don't promote it as a good way to make money. You just got lucky in a bull market.
      • gt565k 6y ago
        Learn something about how financial markets work before you make a blanket statement that options are gambling. Yes, you can gamble on options if you don't know what you're doing, but they are a financial instrument that can be used to hedge risk and make informed financial decisions that result in great rewards.
  • capsulecorp 6y ago
    >Options trading is literally gambling To the average ignorant trader, sure. Otherwise this statement doesn't hold water. You should really do some research before making such silly uninformed claims.
    • viklove 6y ago
      Anyone who purchases options is indeed gambling. I mean, you're not getting anything in return for your money like when you purchase shares to build equity. When you buy an option, if you're wrong you literally lose all your money. Now, I know you're gonna say you can lose all your money when you buy shares, but no -- that very rarely, if ever, happens. If you buy a dividend stock than it's even better as a long-term investment. The only parties options trading isn't "literally gambling" for are the ones selling the options like market makers (Citadel). They know people like to gamble and they're happy to take the other side of the trade because it's free money when they hedge properly (sounds like a casino, doesn't it?). Anyone who buys options is literally gambling.
      • fractionalhare 6y ago
        > Anyone who buys options is literally gambling. I guess you also believe the entire insurance industry is gambling too. Out of curiosity, what parts of finance do you think aren't gambling? If you categorize all speculative activity under uncertainty using the same word, that word ceases to be useful.
        • viklove 6y ago
          Insurance is rooted in statistical analysis. Buying options, unless you literally buy every option that exists, is not even close to similar. Did I adequately address your strawman?
          • fractionalhare 6y ago
            No you didn't address it all. It's also not a strawman because buying options is literally a form of insurance... Have you ever priced a derivative? What about the estimation of future/realized risk using implied volatility doesn't seem "rooted in statistical analysis" to you?
  • icedchai 6y ago
    As usual, "it depends." Buying calls and puts is often gambling. However, you can also do rather conservative options trades (writing out-of-the-money calls on stocks you own and want to sell anyway, for example) and bring in extra money.
    • andrewzah 6y ago
      This strategy is referred to as theta gang in /r/WSB nomenclature, but I would argue this is different because it's meta-gaming other people who are foolish enough to buy those wild out of the money options. This is my preferred strategy as well.
      • fractionalhare 6y ago
        It's an old strategy. Without an actual edge and significant (read: sophisticated and costly) risk management, that strategy will eventually get blown out by someone who is better at pricing long tail risk events than the seller. There's a reason market makers obsessively delta hedge. Would hate to have been selling put options on VIAC when Archegos shit the bed on $20B with >4x leverage. Good luck foreseeing that.
        • nverno 6y ago
          Well just make sure you are selling credit spreads and the risk of such events is mitigated
        • icedchai 6y ago
          yes, I have had this happen with a biotech stock. The puts can be very risky. I usually sell calls since it is easier to stomach psychologically when it goes wrong.... "I missed out on some gains. But I would've sold anyway..."
  • xwdv 6y ago
    Options trading is not “literally gambling”. If anything it’s literally selling insurance. I’ve made about $90k this year just selling calls against my stocks and puts for stocks I want to buy, with about a 90%+ win rate.
  • Der_Einzige 6y ago
    The house doesn't always win. Gambling is guaranteed to lose you money amortized, the stock market is the opposite.
  • kyleblarson 6y ago
    Some options trading is gambling. Not all. Options can be a very useful tool to increase revenue and reduce risk in a portfolio.
  • psychiatrist24 6y ago
    Were they not invented as insurance?
• fractionalhare 6y ago
  It's an easy product to sell. They gamified the lottery. Complete with a faster turnaround time, higher frequency, and stronger dopamine hits. The winners are more visible too.
  • runarberg 6y ago
    This is an excellent point and should be reiterated often. The lottery is one of the more innocent gambling game. The delayed reward, low chance of winning small amounts, and fixed schedule makes it so that it is not nearly as triggering of addictive behavior as other gambling games. Personally I think the lottery should still be illegal, but it provides a good baseline. Any gambling game that has more effective contingencies then the lottery should at least be heavily regulated (possibly banned). And stocks definitely do.
    • JKCalhoun 6y ago
      Yeah, the problem is, if you make the lottery illegal, numbers rackets will pop up to fill that void. I guess it's a bit like the Japanese government turning a blind eye to the pachinko parlors.
      • billytetrud 6y ago
        Except the Japanese government turning a blind eye is a simple case of corruption
  • conistonwater 6y ago
    At least where I live, the lottery profits (around 50% of revenues, IIRC) are largely used for charities and just various social organizations and stuff, like sports. I'm not really for lotteries personally, but I think what you said is quite unfair to lotteries all things considered.
    • fractionalhare 6y ago
      I see. I wasn't trying to make an ethical statement about lottery profits, just compare the likelihoods of winning.
• bruiseralmighty 6y ago
  This is actually a desired outcome of Robinhood's business model. They go through great effort to make their trading app feel like a slot machine without giving off the appearance of gambling.
• ryandrake 6y ago
  For a while before the pandemic, lots of my poker buddies got into crypto. Most of them didn't even know what a blockchain was, but they had a portfolio of 20 crapcoins and hundreds of trades a month. Now, like your coworker, they're on Robinhood. Gamblers gotta gamble.
  • JKCalhoun 6y ago
    It's hard for me to decide if I am okay with that, because the Stock Market is indeed a casino. Or if I am troubled since the Stock Market is not supposed to be a casino.
    • dghlsakjg 6y ago
      I think that there is some nuance: Day trading and short term plays are a casino. It is a zero sum game where every winner has a loser. Long term holds, index investing, etc. Is arguably not a casino since there is very much a way to play that is not zero sum. You are counting on dividends, actual value being created, and it is possible to make money without there being a 'loser'.
    • notJim 6y ago
      I sort of wonder if long term, as more and more retail investors get into the market, it'll become less and less rational. A lot of people seem to treat it sort of like trading cards or a fan club, where they buy stock in a company because they like it.
• conistonwater 6y ago
  Well, why do you think Robinhood is valued at $11.7e9 on $0.68e9 in revenue? It's not people investing a fraction of their pay cheques once a month.
  • JKCalhoun 6y ago
    I don't know. You know something I had never thought before? "Hey, I have a business plan — and our target market is the poor." And yet I have been fascinated with the Dollar Generals (Family Dollar, etc.), the payday loan business, the lottery.... It sounds like you can make a business on the back of the poor – you just need volume.
    • jdavis703 6y ago
      The bottom 10% of American households have negative net worth. I don’t think these people are significant players on the stock market.
      • runarberg 6y ago
        idk. I wouldn’t discount the promise of get out of dept quickly schemes. Reading headlines like “Made x millions on Robinhood”, “Invested in GameStop, now a millionaire” is doubly tempting for desperate folks. And if you have easy money available from predatory lenders (i.e. payday loans, second mortgages, etc.) I wouldn’t be surprised if a significant amount of the bottom 10% have lost money on the stock market. Of course this is a measurable figure, so I’m willing to accept that I might be wrong.
  • athrowaway3z 6y ago
    Please make this notation become a standard thing across news papers and discussions across the world! Especially English<->Other european languages have different meanings to the word billion and miljard.
    • samatman 6y ago
      It works here, for obvious reasons, but not nearly so many people know what $1e9 means as know what $1 billion means. Although if you dig into it, it turns out that a lot of people are hazy on exactly how much more a billion is than a million, or a trillion than a billion. Quite aside from the short and long scale thing, I just mean that instead of knowing that a billion is to a million as a million is to a thousand, their concept is more like a million is "big", billion is "really big" and trillion is "omg really really big!!!".
• munificent 6y ago
  I do have to wonder how much of this behavior is risk compensation [1] from people stuck at home. [1]: https://en.wikipedia.org/wiki/Risk_compensation https://en.wikipedia.org/wiki/Risk_compensation