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No, You Aren’t Going to Get Rich by Options Trading

• MuffinFlavored 4y ago
  > My position, to be clear, is not a patronizing one that posits people can’t do as they please with their money, but rather that a game of Russian roulette wouldn’t be so thrilling if you found out it was a full clip. Might I suggest to the author posting some evidence/data that shows retail options traders getting burned? Burned in the sense of having no returns to speak of. Obviously, they're getting burned on bad spreads/lots of commissions (mentioned in the article). I could be wrong but wouldn't simple logic dictate that... most people stop doing something that loses them money? If they are losing 100% of the time (aka putting money in, it disappears, they are left with nothing over and over), wouldn't they stop? Or are they winning just enough to keep them hooked? I don't disagree. Wall Street = manipulative. Little guy loses. We get it. But... what's drawing people to Robinhood? The thought of turning $500 into ~$1k+ really fast by guessing something correctly, right? It's weaponized gambling. My question is, why is it so popular if they supposedly always lose/have nothing to show for it?
  • i_call_solo 4y ago
    It's the same reason slot machines, lotto and scratch offs are popular despite their extremely low odds of winning. The dream of the big winner invokes something in us, especially those most susceptible to gambling addictions.
    • MuffinFlavored 4y ago
      Odds of winning Powerball: one in 292.2 million Odds of guessing SPY direction right through calls/puts right and getting 30% return: going to guess not that bad I'm curious what the odds of making a profitable options play are. It's got to be less than 50-50 because of the time decay.
      • jnwatson 4y ago
        The great thing about options, like sports gambling, is you can find an option play that will give you whatever odds you want. You can bet the underlying goes up, that it doesn't go up, that it moves in either direction, that it doesn't move in either direction. There are plenty of 90% odds option plays. Keep in mind there's a big difference between odds and expected value.
      • deleted 4y ago
        [deleted]
  • Chinjut 4y ago
    Why are casinos so popular? The answer is likely similar, and likely not because people come out ahead financially.
  • dist1ll 4y ago
    > I could be wrong but wouldn't simple logic dictate that... most people stop doing something that loses them money? Humans aren't meat-based Turing machines, they're living beings with emotions and impulses. Why do you think gambling addictions are a thing? Or drug addictions? Or any bad habit that we know is bad, but still do it because self-control is difficult?
    • MuffinFlavored 4y ago
      > they're living beings with emotions and impulses. Isn't that all the more reason they should stop after they experience the emotions of their first loss? If all they experienced were negative emotions + losses, they'd stop sooner/retail options trading wouldn't be "such an epidemic". Therefore, something I feel the article author slightly missed discussing, they win sometimes. That's the data I'm interested in. How often does a retail investor, irregardless of predatory Wall Street + high commissions + fees + whatever, come out ahead on an options trade? Once a week? Once a month? Once a year? If they win 50% of the time and lose 50% of the time, maybe it's not that evil?
  • robotnikman 4y ago
    My theory is people are seeing the 'winners' post their gains on social media (like reddit /r/wallstreetbets) and so they try and go in and see if they can do the same thing. A lot of these people are in experienced and may not know what they are doing, with many losing money in the process
    • Cpoll 4y ago
      /r/wallstreetbets was a weird one because there were so many 'winners.' I think on a smaller scale there's a survivorship bias too. In that sense, it's like deciding to play Russian roulette with a full clip because you saw the gun misfire for someone else.
      • bombcar 4y ago
        A decent amount of WSB posts used to be "got rect" also, whenever the market moved the other way.
      • blamazon 4y ago
        There's been just as much, if not more, 'loss porn' on that subreddit. I think people just upvote the extremes. The middle of the bell curve is uninteresting: "Take it to /r/investing" as they say.
        • MuffinFlavored 4y ago
          > I think people just upvote the extremes. They do. There is no doubt there are a lot more "bagholders" than winners. People most likely upvote the winners hoping "I wish that was me" and keep chasing those mythical wins that seem to happen to everybody else except themselves (mostly). Therefore creating even more losses for themselves, etc. Vicious cycle of hopium/FOMO.
    • TigeriusKirk 4y ago
      WSB also has a culture of essentially celebrating big losses. There's no shortage of examples of people losing their entire investments. It's a weird culture.
  • jawns 4y ago
    > I could be wrong but wouldn't simple logic dictate that... most people stop doing something that loses them money? Have you ever been to a casino? Everyone knows that the house always wins in the aggregate, but everyone hopes that they're one of the lucky individuals who will beat the odds and win as an individual. I would guess, in the case of options trading, that it's not the same people being burned over and over again, approaching 100% of the time, but rather enough wins among the losses to keep some people hooked, while they eventually either get slowly drained or, in some cases, body-slammed. Couple that with a steady influx of new, intrigued customers, and there's enough fuel to burn for a while.
    • bell-cot 4y ago
      Oh yes, THIS. And "making easy money" by trading stocks / options / other securities is a far, far better story to tell than "I got lucky at the casino" - which helps lure even more players into the securities casino. (And, at least in my social group, folks who win or lose at the casino seem to honestly speak of their net gain/loss. Vs. I've yet to hear a single story about making money in securities trading which even hinted at whether the teller's trades added up to a net gain or net loss for the (say) year.)
    • Kon-Peki 4y ago
      > Have you ever been to a casino? Some people view it as a form of entertainment, and most people view entertainment as something that is ok to pay money for. Keep it within your budget, and have fun. The exact same could be said for options trading. I totally agree, btw, that you aren't likely to get rich options trading. But it certain can be a very fun way to test your skills at analysis and predictions.
      • MuffinFlavored 4y ago
        but it’s counter-intuitive what makes options trading fun? the allure of turning a profit what does evidence show? not only will you not turn a profit options trading, you’ll realize losses how is realizing losses fun when the goal was supposed to be to turn profit?
  • millzlane 4y ago
    Ludomania is the answer you seek. Edit also this: https://link.springer.com/article/10.1007/s10899-016-9659-x https://link.springer.com/article/10.1007/s10899-016-9659-x
  • giantg2 4y ago
    To me, the big draw to options during the pandemic is that nobody knew what would happen. Normally, the little guy gets completely screwed because of information asymmetry. In that sort of environment it's more of a level playing field. Sure, cost were fairly high, but so was the volatility. It at least felt like you had more of a chance than normal. I had one option that I sold at break-even that would have 30x'd to $30k if I just held it two more months. That's a bigger potential gain than anything I'll ever see again, unless I play the lottery. Now it feels like there's no point to options because things are more stable and the big guys have better intel. I might as well play the lottery - clear odds, no insiders, and less manipulation.
  • phphphphp 4y ago
    You're trying to find rational behaviour in gambling: most gambling is not rational. I don't know of any statistics specific to options, but there's other financial instruments, like CFDs, that have heavy regulations in some countries because of how much people lose: options will probably go that way, too. For example, if you visit Trading212 and try to use CFDs, you'll see the following warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high riskof losing your money. And yet, Trading212 make huge amounts of money off-of CFDs, despite it being legally required for them to tell people that they will lose their money.
    • cjrp 4y ago
      "Ah but those guys in the 83% didn't know what they're doing/aren't following the plan I am/haven't done the course that I have". It's a bit like riding a motorcycle and believing that the injury rate is high because other riders are idiots or go too fast or don't wear proper gear, etc.
      • mrguyorama 4y ago
        Or like the guy at the blackjack table swearing up and down "I have a system" as he loses hundred dollar chip after hundred dollar chip. Some people seem to find the reality that statistics show us unpalatable, and instead of re-interpreting the world around them with actual data, just decide that statistics is bunk instead. And there are strong and monied players that keep trying to push that angle.
    • MuffinFlavored 4y ago
      > 83% of retail investor accounts lose money when trading CFDs with this provider. How many retail investors think they can be that 17% though? It creates entire communities. You start following people who claim to have success/an edge but you can't see any actual statistics on their track record unless you put the time in to follow them. Think paid private Discord servers where you are paying for a tip on a winning trade.
  • idontpost 4y ago
  • rr888 4y ago
    > If they are losing 100% of the time No its not so one sided. If you really can lose 100% of the time you can just reverse the positions and make money. Price movements are usually random so you'll make money some times and lose at others.
    • MuffinFlavored 4y ago
      But the overall trend is what... lose money? Why can't the average retail investor come to that conclusion/realization on their own/draw enough conclusions to stay out of the market/not hurt themselves?
      • rr888 4y ago
        The trade payoffs are random. Its like a casino, they house takes a cut on each trade.
  • Adrox 4y ago
    You didn’t read the article, did you? They mentioned a study that people on average loose 4.5% a month, 50% a year: > one longitudinal study of nearly seventy thousand Dutch retail investors. The findings back up the story of the current wasteland of retail traders over the last two years. Over six years, researchers found that retail investors who participated in options trading lost, on average, 4.5 percent monthly, more than halving their accounts within a year.
• ramesh31 4y ago
  The biggest beginner trap with options is thinking you have 50/50 odds. I'm buying a call or a put, so I have to have a 50% chance of being right, right? Nope. You have a million ways to be wrong, and a very tiny narrow window of ways to be right. You can lose your shirt on poorly executed calls, even if the stock skyrockets. You legitimately have better odds walking into a casino and betting on black than buying calls/puts.
  • spywaregorilla 4y ago
    That's... wrong as well. You don't need to have a million ways to be wrong and a few ways to be right. You just need to understand that the world doesn't operate on naive probabilities where each outcome is equally likely.
  • jnwatson 4y ago
    Odds and expected value are different. There are plenty of 90% plays in options trading. There aren't in the casino. Expected value though...
• girishso 4y ago
  As far as I know, options writing is how one makes money in options in the long run. Maybe experts can share their thoughts.
  • bombcar 4y ago
    You can sell puts and calls, and you CAN maybe come out ahead but it's hard to do after fees and taxes. However, fun fact, certain retirement accounts let you sell puts and calls.
• 3pt14159 4y ago
  People said the same thing with crypto way back. The truth is sometimes people are able to make money on something. Sometimes their returns are going to be eye watering. But you should know going in that finance is a game for sharks. If your skill is in mathematics, did you go to the best one of the best universities for it? If not, think long and hard about what type of angle you have that others haven't found. There may be a downside that you're unaware of. But yes, the market can be be beat if you've got insight.
  • DontchaKnowit 4y ago
    Honestly the biggest assets you can have is 1) be willing to read a bunch of boring shit and make sense out of it. If you can read an sec filing and understand it and are willing to do so youre automatically in the top like 1% of retail. Most people are trading on social media tips and other bullshit like that. If you can figure out how to find and understand real no-bullshit information you're well on your way 2) having a small bank roll. Say under a few million. You now are able to take significant (significant as in, a significant portion of your net worth) positions in ultra small cap companies. Many Institutional traders cannot do this without legal implications they'd rather avoid and so you are competing with a much smaller pool of people, and those people are necessarily less advantaged (in terms of information and access to tools/resources) compared to you.
    • adabyron 4y ago
      These are 2 tips that are not shared enough with people wanting to spend a lot of time investing. They're sage advice from many very successful investors who have beat the S&P500 consistently for many years until they could no longer do #2, which to me means you can just sit & retire on your large cap index funds & low risk. The only thing I would add, is the 3rd thing those people always say. It's easy to make money, it's just as easy to lose it. Make sure you're limiting your down side. Preserving wealth over long periods is critical.
• jevgeni 4y ago
  The first sentence already misrepresents its source. Jacobin claim: "As of this August, ordinary investors, [...], have lost everything they came to the market with during the pandemic." [source: Business Insider article] Business insider article: "Retail traders have now lost all the money they gained during the pandemic, according to Morgan Stanley" So no, Jacobin, they didn't loose everything they came to the market with, but they have lost all the profit in a limited span of time.
• logicalmonster 4y ago
  You're probably not going to get instantly rich doing any kind of options trading. The story of an average guy who randomly makes a big bet, times the market perfectly, and quickly turns a few thousand dollars into a few million happens once in a while, but is incredibly rare. That said, some kind of options trading can be less risky than just holding stock because you can do things like collecting premiums until your target price is met. There are low risk strategies like the wheel that basically guarantee you income for doing nothing but being patient.
  • purpleflame1257 4y ago
    Back in the day I used to sell a lot of covered calls on blue chips for this reason. Locking in almost guaranteed small returns that you could churn again and again.
  • agency 4y ago
    > There are low risk strategies […] that basically guarantee you income for doing nothing Listen to yourself.
    • highwaylights 4y ago
      You owe me a $10 keyboard. This one’s covered in coffee now.
    • logicalmonster 4y ago
      What is your issue with my comment? What I said is true. You can essentially guarantee yourself an income. The risk comes from anytime you're holding stock and the stock value decreases, but you can sell calls on that and earn an income on that until a company goes out of business. This type of wheel strategy is inherently less risky than merely buying stock. There's obviously a lot of nuance to even simple options trading and I don't want to write out 100 paragraphs for some casual comment.
      • jnwatson 4y ago
        That's like saying you can rent out a burning house. It is technically true, but folks usually like to preserve their initial capital while making income. There Ain't No Free Lunch in options. Covered calls give up potential upside gains for income now. You still have the same downside risk as the underlying stock.
• SSJPython 4y ago
  Very few get rich trading options. Most are no better and no worse off. Some people get completely wiped out. There is nothing wrong with buying low-cost index funds and holding them long-term. That's how you build wealth.
  • substation13 4y ago
    > There is nothing wrong with buying low-cost index funds and holding them long-term. That's how you build wealth. Given how prevalent this advice is these days, the indexes are arguably over-priced.
    • mywittyname 4y ago
      Agreed. But elder millennials will probably be the "boomers" of the index fund trend and will be selling them for retirement before the bubble pops.
      • ausbah 4y ago
        so what's the alternative? invest in mutual funds that don't beat the market and take a hefty % of your compounding returns due to management fees? crypto? getting a house like the prior generations?
        • mrguyorama 4y ago
          Well we let the previous generations murder any possible way of building yourself a better future for like 4 decades, what did we expect? Turns out optimizing for grandma's continued wealth increase is harmful to basically everyone else. You want something to protect you in the future? Vote.
    • SSJPython 4y ago
      That doesn't necessarily mean people follow this advice. It requires patience and discipline to do this.
• csours 4y ago
  Don't bet the rent money.
• cactacea 4y ago
  If you trade options and any of this is news to you then no, you're definitely not going to get rich by trading options.
  • ivanche 4y ago
    Definitely! If one doesn't know at least 4 greeks (delta, theta, gamma and vega), what is volatility crush, what are credit and debit spreads, one doesn't have any business in option trading, let alone in trading weekly options or earnings.
    • adabyron 4y ago
      These comments are right on! Options are great, if you take the time to learn about them & spend time making very small bets with them as you learn. If you use them correctly, they can reduce your risk & increase your upside. I've been learning & using them for a few years as kind of a side hobby. My small options portfolio has outperformed my index fund retirement portfolios that I don't touch in good times & bad. I wouldn't recommend them though for anyone who needs to read the above article or anyone who doesn't invest a lot of time learning about options & keeping up to date with the companies they're investing in, the overall market & upcoming events that will adjust the mark. Though I do agree with the article that the goal of options is usually not to get rich but to decrease your downside & possibly add a small amount of income.
• NovemberWhiskey 4y ago
  The way to get rich by options trading is to make a market in them, to aim to be as neutral as possible on your greeks and to take bid/ask spread, and to do this with extremely high-quality real-time risk analytics systems, first-line trading oversight and second-line risk management oversight. In other words, it's to be an equity volatility trading desk.
  • rr888 4y ago
    > it's to be an equity volatility trading desk There are already a lot of real professional trading desks doing this. How can you compete with them?
    • jovial_cavalier 4y ago
      Put in limit orders that are way out of line and pray for unsophisticated takers?
      • filoleg 4y ago
        Exchanges are legally obligated to provide the best possible buy/sell quotes to people, so this is not gonna work. For illustration purposes, imagine you own shares of a ticker that trades around $150/share, with a bid-ask gap of $1. So the lowest sell order is sitting at $150.50, and the highest buy order is sitting at $149.50. Now, imagine you queue in your way out limit sell order at $200, and then some unsophisticated trader submits their limit buy order at $201. Your limit sell won't trigger, until the entire queue of sell orders sorted by increasing prices (starting at $150.50) gets filled first. If that unsophisticated trader wanted just one share, they will get that one share at $150.50. The whole idea of a limit buy order at $201 is that it will execute at the cheapest available price, as long as it is below $201. Similarly with limit sell orders, your $200 limit sell will execute only at the edge of bid-ask gap price, as long as the cheapest available ask is at $200 and meets the bid at that number. Until that moment, for every buyer, the queue will be processing all the cheaper ask prices first, until it chews through all of them (which would pump the stock enough to reach your limit sell price).
• highwaylights 4y ago
  Honestly this is why after dipping my toes into this some time back (along with some very limited time spent in crypto without any kind of derivative shenanigans) I came full circle back to index funds and just putting what I can away at the end of the month. Are index funds going to make me crazy-bonkers-rich? No, but neither was anything else in all likelihood. What they’re brilliant at is giving me my time and attention back. They’re low risk/reward, and they’re boring. Just like me, as it turns out. Toast to Jack Bogle.
  • gxs 4y ago
    It's fun to me to stock pick and I rather enjoy it fully aware of the risks. My solution is to set aside a small amount for this purpose and the rest, as you said, put away into index funds.
    • highwaylights 4y ago
      And I sincerely wish you well with it, I hope you beat the market and have fun doing it! For me, I’ve learned that modest returns over a long period (that I never have to think about) are good enough :-)
    • gmadsen 4y ago
      I justify it as its probably better odds than a casino, and more enjoyment. Nothing wrong with a yolo account, if everything else is squared away
  • deleted 4y ago
    [deleted]
  • spelunker 4y ago
    Options in particular are a trap IMO because they require a LOT of active attention to the market day to day, and in the end aren't really worth it. I also dabbled in options a while back, and ditched them after losing much more than I should. I did learn a lot about the stock market while doing options though, so I guess that is a plus.
• DontchaKnowit 4y ago
  Frankly, just reading the headline, I disagree. First of all, yes in a broad sense most people are gonna get fucked trading options if you don't know what they're doing. I know what I'm doing and my strategy is exclusively long equities. But you can absolutely make metric fuckloads of money trading options and there are some trades out there that ain't that hard to figure out. For example, you can print money on a regular basis trading puts on UVXY when volatility spikes. You just need to understand what you're doing. Now trying to predict earnings and all that bullshit -yeah that's a suckers game. But there are plenty of options strategies that can make retail traders a lot of money. (BTW you may ask why I don't trade uvxy options if I'm so confident in its profitability - well I can't conduct the above mentioned strategy without violating regulations because of my occupation. But I did prior to my employment and consistently made double digit % returns in 1 trade every 2 months or so.)
  • highwaylights 4y ago
    Double digit percentage returns every two months you say? Why with a starting balance of $10,000 that would be (at the very lowest end of that range) over $1.25 billion dollars after 20 years. If you don’t mind me asking, what was the offer that tempted you to give that up?
    • bena 4y ago
      I feel a sort of gambler's mindset here as well. I'm sure you can get the occasional double digit percentage return every couple of months, but it is also couple with a lot of losses as well.
      • DontchaKnowit 4y ago
        Definitely has the potentially for loss, but it was pretty damn consistent while I was doing it. As awful as it is, this trade is basically just taking advantage of retail options traders that fundamentally don't understand how UVXY works
    • DontchaKnowit 4y ago
• brink 4y ago
  I learned this when I got fleeced in the '17 crypto bull and bust. When there's music, it's okay to trade. You're probably going to make money just by accident. But when the music stops, leave immediately, take the bit of money you made with you, and don't look back. It's so easy to stay greedy after the music stops and you're no longer at peak profit. I stuck around too long trying to make it back, lost everything I made and then some. Never making that mistake again.
• BSOhealth 4y ago
  Anecdata, but I made an unfair amount with some lucky spins. That was a few years ago, but I immediately understood how stupid my experience was and moved all the earnings into index funds and am scared to ever play options again.
• LanceH 4y ago
  I'll sell options on underlying boring securities. I may cap my short term gains to 15% or so, but I'll get an immediate couple of % points several times a year. it turns a boring blue chip into a less boring blue chip, but going from 8% to 12% is no joke.
  • MuffinFlavored 4y ago
    Now talk about the times this strategy hasn't worked/the inverse (loss instead of profit) has happened to balance it out so it doesn't sound too good to be true :)
    • unabridged 4y ago
      The strategy they are describing (selling covered calls) is actually less risky than holding the underlying. They make more than just holding the underlying when it drops or stays flat, and in exchange they make less when the underlying goes up a lot. Options are just a tool that lets you dial in the amount of risk you want, they can be set up to be more conservative or more risky than the underlying. The latter is what makes the news.
      • MuffinFlavored 4y ago
        Isn't the downside to selling covered calls that, not only do you need to hold the underlying, you can get the option you sold exercised, aka you lose your 100 shares per contract?
        • jeffreyrogers 4y ago
          Yes, so the upside is capped but you get to set the cap based on what call you sell. The bet you're making is that the stock won't appreciate enough for the other party to exercise the call option (so you earn the option premium + underlying appreciation). If the option is exercised you lose some of the gains you would otherwise have made, but you still captured some of the appreciation. But there is no increase in downside in the financial sense (if the stock price declines you keep the premium).
• stjohnswarts 4y ago
  I knew someone who quadrupled his holdings over the past two years and "got out" in time to keep the vast majority of it. So it does happen from time to time and I'd say going from half million to 2 million is pretty great. I don't have the stomach for it though. However it's just an anecdote, most people people don't have the knowledge (or luck?) to do well other than to make moderate gains.
• slothtrop 4y ago
  Does anyone know when us plebs will be able to create custom index funds? I recall reading this existed in some form, but not for the public.
  • ivanche 4y ago
    What would be the use case that is not already covered with thousands of existing ETFs that track thousands of existing indices?
    • slothtrop 4y ago
      Avoiding companies I don't like.
• Archelaos 4y ago
  A warning about index funds, that were mentioned a couple of times in different threads here. If the investemnt bank issuing the index fund goes bankrupt, you lose your money - see Lehman Brothers. You can mitigate the risk by buying from different issuers. However, the bankruptcy risks might still be too closely related; in other words: there is the risk of a domino effect of bankruptcies of investment banks in a future financial crisis. The best thing you can do to avoid this risk is to buy many different stocks and directly mimic an index or other fund yourself. It is not necessary to do this exactly. A random proportional selection of a considerable number of stocks (40+, but the more the better) from the index or fund you want to mimic and adjusting your investment once a year should be sufficient.
  • zhdc1 4y ago
    > If the investemnt bank issuing the index fund goes bankrupt, you lose your money - see Lehman Brothers. The actual assets are held by a separate custodian.
  • H8crilA 4y ago
    Banks generally do not issue index funds / ETFs. They're often the APs, but that poses very little risk to the funds. I cannot recall the last time I saw an ETF that was issued by a bank.
  • seiferteric 4y ago
    I have never heard this, is it really true? Most people have their 401k's/ira's in index/mutual funds so it would be pretty devastating if like vanguard or fidelity went under and everyone lost their money... to the point where I don't think the government would allow it to happen, but maybe that's just wishful thinking?
    • advisedwang 4y ago
      I took a look at a random prospectus to see what was disclosed (For ITOT). It does have some risk that sort of sound like this: > Authorized Participant Concentration Risk...To the extent that Authorized Participants exit the business or are unable to proceed with creation or redemption orders with respect to the Fund and no other Authorized Participant is able to step forward to create or redeem, Fund shares may be more likely to trade at a premium or discount to Net asset value and possibly face trading halts or delisting.
• rexreed 4y ago
  This will sound super basic and maybe even trite, but the way to get rich is to hold assets that increase in value. I know it's stupid and basic, but that's the way. Assets could be hard like physical assets or real estate, but those assets trade long-term potential for asset value growth with liquidity. The best assets are the ones that not only increase in value at a significant rate, but also provide cash / income along the way. Then your assets are working for you, rather than you working for your assets. I know, boring and super obvious right? Assets also include ownership in companies, whether its your own or someone else. The best assets to own are the ones that have the potential to rapidly increase in value, but of course those are the most risky. So the balance is rate of asset value increase over time measured against risk of holding that asset. The best assets are also ones where a third-party can provide a value of that asset, and that asset has a market. The best assets are also the ones you really own versus borrow or lease or have to earn into. Of course, there are ways to borrow assets as a means to actually own and hold other assets. I know this is stupid and basic, but people get so caught up in swings and moves and trades and plays and options and derivatives and this angle and that angle. But what has worked for me is to buy assets that increase in value, and keep doing that. You can't get "rich" by being an employee and trading your time for money. There's no asset increasing in value. Of course, if you own a piece of the company you're employed in, then what you're working for is to increase the value of that asset, and your income is a cash flow benefit. Likewise, you can't get "rich" by finding passive income. That's great for covering your cash flow and expenses, but there's no asset increasing in value. If you can find an asset that provides cash flow while also increasing in value, that's even better. You can't get "rich" by timing the market. First of all, that's mostly luck, so all examples of where that works can be attributed to luck more than skill, and second of all, there's no asset that's increasing in value. Oh and one more thing. This is what I realized fairly recently. Venture capital doesn't invest in businesses. It's the biggest head fake there is. They invest in assets, high risk, fast growth assets. Whether that asset generates revenue for the business owners doesn't matter and often gets in the way of the asset increasing in value or slowing down the rate at which the asset increases in value. Whether that asset hires or fires employees doesn't matter (to the VCs). What matters is how fast can their asset increase in value and what is the market to sell that asset. Sometimes you have to increase the value of an asset by overhiring, and then by overfiring. Once you realize that VCs invest in high risk high return assets and not in businesses, then it all clicks.
• mrhichem 4y ago
  Shameless plug: postoptions.app is my side project. a Real-time option screener. I'm happily serving few happy paying clients.
• narrator 4y ago
  YTD I'm up more than 300% on my options trading account. Options trading is making bets. The way I make bets is in regards to unusual news events. The events that made me the most money this year were Powell raising interest rates in a relatively unprecedented way, the monkeypox crisis and catching the end of the crisis before the mainstream, and the Nord stream pipeline blowing up. I didn't anticipate these events, I just opened positions quickly after they happened before the rest of the market figured out which direction it was going to send the market. I also closed these positions when I read news that meant the impact of these news events were ending. Most of the time there is no trade to be had. There's nothing special that's going on, so I just sit in cash. Options trading is work. When I have open positions, I have to read a lot of news and get up before the market opens every day and watch things throughout the day with my finger on the sell button. It's not something you can really do while having a normal day job.
  • cupofpython 4y ago
    >and I don't bet the whole portfolio this is the catch. you are perpetually in a mental struggle because all it takes is one big bad bet to undo enough of your work that it wasnt worth it. So the options portfolio that you are up 300% on is probably less than 10% of your entire portfolio. Whether it is or isnt under 10% is not actually important, the point is that the stress involved should begin snowballing past that point not to mention you probably have a decent amount of money liquidated at any given time. for most people it is way for efficient to put the entire portfolio into an index, preferably a tax beneficial account like 401k or roth IRA, and then use all that extra time and energy bettering their workable skillsets so that they can increase their raw income and reduce the odds of unemployment. That said, when i was unemployed for a year - I did a lot of options/crypto trading because i just had so much time on my hands. Since I've been back at a full time job, it's just too draining for not enough benefit. I can work a few hours of OT and guarantee more money that week than trading would get me, and the OT is way less of a struggle
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• zer0tonin 4y ago
  I think a major issue is that most people don't really understand the bet they are making. By buying/selling options, you are not just placing a bet on the stock direction, but most importantly on the stock implied variance/volatility. Since 90% of people straight up suck at high-school level math, I think it's fair to assume that 90% of retail traders don't have the tools to understand derivative trading. And as someone who vaguely understands the required maths, I already realized there was more productive uses of my time.
  • MikeDelta 4y ago
    I know a lot of professional option traders who understand options and markets without knowing the exact math. Don't ask them about brownian motion, but they know very well how to trade implied vs realized vols and skew.
• SilasX 4y ago
  There's a part that refers to the research, but the way they describe it sounds confused, like the author doesn't understand the domain. (Or maybe I'm not using the terms in the standard way?) >Researchers Svetlana Bryzgalova, Anna Pavlova, and Taisiya Sikorskaya found that retail options investors lost over $1 billion during a bull market from November 2019 to June 2021. Their calculations don’t include their estimated $4.13 billion spent on the trading costs, i.e. wide bid-ask spreads that incur immediate losses for options traders. And lastly, we can’t forget the $800 million burned in that time period on commissions. Wide bid-ask spreads are a trading cost? That incurs an immediate loss? That's independent of the loss quoted in the return? If you (for some reason) do your options trading by only accepting standing bids/asks (market orders), then yes, you get a bad price ... but that would be rolled into the return figures, not an independent loss. No matter what the bid/ask spread, you can place an order in the middle and wait for a fill. And commissions aren't a "trading cost" but something that goes in a different (non-trading-cost) bucket?
• deleted 4y ago
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• bob1029 4y ago
  I watched many friends blow tons of money this way. Even I was tempted and squandered a few thousand on bad bets before I learned my lesson. The only investing strategy that allows me to sleep comfortably is to buy & hold shares in companies that I wouldn't mind working for. I've also got some small % of the portfolio dedicated to long plays on companies trying crazy ideas that I personally believe in. At no point do I invest based upon time-series data. I simply pick my desired targets and gradually accumulate shares indefinitely. Every time I tried to get more clever than this, my rate of return suffered accordingly.
• belter 4y ago
  Except if you are Hillary Clinton ;-) https://en.wikipedia.org/wiki/Hillary_Clinton_cattle_futures_controversy https://en.wikipedia.org/wiki/Hillary_Clinton_cattle_futures... "Her initial $1,000 investment had generated nearly $100,000 (equivalent to $373,360.84 in 2021),when she stopped trading after ten months." I know...futures not options.
  • charlieyu1 4y ago
    I’m pretty sure that the futures market has a prohibitive cost of entry to general folks. It is not something you can do for $1000.
  • mikeyouse 4y ago
    Plenty of people have got rich off options trading - but you aren't going to. Take a look at the front page of WSB sometimes, every day there are a handful of people who made 6-figures on long shot options --- and then dozens of people who lost everything gambling on slightly different sets of instruments. It's crazy to me that we restrict actual casino gambling to such a high extent but sports betting and options trading are just a free-for-all.
  • mrguyorama 4y ago
    1) There's no way she doesn't have straight up criminal inside info or otherwise advantageous positions that are literally a crime for anyone else to utilize 2) The lottery has winners too, doesn't make it a smart bet.
• jf93ap29sh 4y ago
  Reminder on every comment you read, there's survivor bias
• pjc50 4y ago
  The variant of "binary" options is so exploitative that they've been banned in a lot of places: https://www.fca.org.uk/consumers/binary-options https://www.fca.org.uk/consumers/binary-options
• markus_zhang 4y ago
  I guess the only way I can imagine trading options is to trade for fun: Find some far OOM options and bet that they go up a lot because of increased volatility or directional move.
• spacemadness 4y ago
  Not to disparage the article here, just more of an observation in the trend of “now you tell me” financial journalism. I wish these types of articles would surface more at the times people need to hear them instead of after a bubble bursts. It’s easy to take a stance when the mood has turned, but I don’t remember these articles surfacing much during the last height of stock speculation last year. I have no data to back that up so it could be my own biases at play.
  • ISL 4y ago
    The articles appear, but they don't draw the audiences until the problem is apparent. I remember in 2017 being told by a Wall Street analyst, "It's been ages since anyone's traded in an environment with actually-rising interest rates, be careful." The rise in rates came later than we both though, but I've thought about their comment often over the last year or so. The knowledge is there, but the appetite isn't always.
  • jdgoesmarching 4y ago
    To be fair, this is Jacobin and being critical of speculation and financial markets more broadly is kinda their whole thing. Their stance hasn’t changed, it’s just not very well liked around here. I was actually surprised to see this gaining traction at all on this site. Maybe this is an opportunity for some HNers to start considering perspectives that don’t treat the WSJ and The Economist as sacred texts.
• docandrew 4y ago
  I understood that options trading is zero-sum: to win, someone else has to lose. In this sense it’s like gambling, also in that the house always wins because they collect the fees no matter what. Like gambling I’m sure there are plenty of people with success stories too. Is this assessment wrong?
  • djoldman 4y ago
    Yes, by definition one option trade for puts or calls with extrinsic value is zero-sum as with no other trades, the final settlement price zeros out the extrinsic value. Many options trades are done in combination with other products, however, which allows for non-zero sum.
  • yold__ 4y ago
    Not if you factor in risk aversion and declining utility. Most investors would happily give up some upside for downside protection. This is where option strategies are not zero sum
  • jonfw 4y ago
    Options are zero-sum in the same that insurance companies are
  • ultrasaurus 4y ago
    With the fees, options are (slightly) negative sum. I'm a boglehead, but as I see it there are only 2 valid reasons to consider option trading: - Hedging: e.g. if a big part of your comp is in illiquid private stock in a company whose outcome is highly correlated to IndustryX, you may want to hedge that with options. Not positive sum in absolute terms but you're paying to reduce risk. - Tax arbitrage: e.g. On a block of stock you got from an IPO. Positive sum from your perspective. Both are a lot of work to do right and neither one is a silver bullet.
• theknocker 4y ago
• browningstreet 4y ago
  I tried reverse engineering options trading and day-trading for a net $200K/year profit trading 4 days/week and 45 weeks/year. I think I determined you'd have to trade at least $60K/day and not lose. But I'm honestly not even sure I was right.
• BitwiseFool 4y ago
  Does anyone else find the trope of journalists using "No, ..." headlines condescending to the point of being counterproductive? It feels like this is meant to give a smug sense of satisfaction to people who already agree and it creates reactance for the people who actually stand to benefit from the alternate perspective.
  • sieabahlpark 4y ago
  • apendleton 4y ago
    In general I'm inclined to agree, but in this particular case given Jacobin's ideological lean, I imagine they see their audience as being mostly either in the first camp or agnostic as to this issue, with vanishingly few people in the second camp.
  • MuffinFlavored 4y ago
    I think the argument here is the alternate perspective (yes, I, a retail trader, could hypothetically turn a profit via options) isn’t realistic/viable. Who here can prove it wrong? :/
• ggm 4y ago
  I think if we all settled for 7% on average[0] return, we'd be a lot happier. Anything else is gambling. [0] measured over the long term.
• alangibson 4y ago
  I read a lot of positive opinions in this thread about index funds. Consider for a minute how much money has been flowing into <= 500 companies due to S&P500 index funds in the last decade. My guess is that we're about to see a bubble pop over the coming recession that no one realized was there.
  • mikeyouse 4y ago
    There's very little money "flowing into" the companies on the S&P500 by virtue of their inclusion. Buying a share of Coca Cola doesn't give money to Coca Cola, it gives it to the previous 3rd party owner of that share. With the exception of new share issuances like IPOs, the share price of a company is mostly irrelevant to the cash position of that company.
  • MuffinFlavored 4y ago
    > no one realized was there but we have data that S&P500 P/E has been elevated compared to history for quite a while
  • brewdad 4y ago
    I don't know if it's a bubble per se or more like the Social Security system in the US. It will be interesting to see what happens to these index funds as the younger portion of Boomers and older Gen X retire and start drawing down their 401(k)s and other accounts. Older Boomers had pensions, so weren't as reliant on amassing personal savings for retirement, but that's far less common as you move into younger populations.
• mikestew 4y ago
  ...that a game of Russian roulette wouldn’t be so thrilling if you found out it was a full clip. Pro tip: don't play Russian roulette with anything involving a "clip" (more accurately: magazine) and even a single bullet[0]. "Revolver" is what you're looking for here. OTOH, perhaps it is a fitting metaphor for amateurs trading options. [0] Spoiler: a magazine-fed firearm with even a single bullet in it will feed that bullet right to your brain when you pull the trigger.
• unmole 4y ago
  > small-time investors are being systematically fleeced Anyone buying options in the hope of getting rich is a speculator, not an investor. While they might lose money, they aren't being fleeced. > And if adjustable-rate subprime mortgages were the oppressive product of the Great Recession, options trading might’ve filled their shoes for the current downturn. This makes no sense to me whatsoever. > wide bid-ask spreads that incur immediate losses for options traders. A wide bid-ask spread might give you bad fills but that doesn't mean you incur an immediate losses. You might even turn a profit! > To be clear: losing in the market is one thing, but managing to be systematically fleeced at a time when all boats were rising Again, claims of people being fleeced proffered without any evidence. Buying options has a different payoff compared to buying stock. News at 11. > Within that machine, encouraging or allowing leveraged options trading on short contracts among retail investors should be considered nothing less than criminal. I'm not seeing what is supposed to be criminal here. There's no attempt to explain how options actually work or why people lose money trading them. All we have is handwaving and conspiracy mongering. But I guess that's totally on brand for Jacobin.
  • benj111 4y ago
    I think the issue is it's investing adjacent so theres the risk of people seeing it as an investment, or at least > a zero sum game, where I fact it's < a zero sum game. It's also an open question whether non sophisticated traders / investors should be allowed access to more complicated investments. For me leveraging falls on the wrong side of the line. We saw what happened in 1929.
  • Adrox 4y ago
    You didn’t read the articke, did you? According to the study cited in thr articlr People on average loose 4.5% a month: > one longitudinal study of nearly seventy thousand Dutch retail investors. The findings back up the story of the current wasteland of retail traders over the last two years. Over six years, researchers found that retail investors who participated in options trading lost, on average, 4.5 percent monthly, more than halving their accounts within a year.
    • 4y ago
• dbs 4y ago
  Any method that requires you to trade frequently is not good to get you and keep you rich. Also you don't get rich by paying for liquidity (which is not to say you will always get rich providing liquidity)
• arde 4y ago
  "Like the workplace itself, for most of us the stock market is simply another arena of capital extraction". So, to the author, workplace is an arena of capital extraction. Although the comparison is uncalled for, I'm glad of this candid Marxism because it lets me put this opinion piece in perspective. Given that bias I don't think I'll spend time reading it unless I'm bored.