3 ms·

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

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.

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.