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How to Lose Money

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Re: How to Lose Money

#271

Post by mattmaroon »

gowld wrote: post #156
mattmaroon wrote: post #118

Earlier quoted context omitted.

It’s unlimited because in the time he is holding cash there’s no limit to the amount the stock market could increase. If he sells a stock for $10, and then it goes from $10 to $10,000 he’ll only be able to buy back 1/1,000th of what he had. He lost $9,990. It’s the same as writing call options. There’s defined upside and unlimited downside.

By that theory everything has unlimited loss potential. "Loss potential" (downside risk) in finance refers to money you lose, not money you could have made by doing something else. https://www.investopedia.com/terms/d/downsiderisk.asp

Yeah I was just explaining what I was pretty sure he meant.

Re: How to Lose Money

#272

Post by Bakary »

Cthulhu_ wrote: post #24
Pyramus wrote: post #15

Earlier quoted context omitted.

Thats a very US American (anglosaxon?) viewpoint to take. Education is paid for by society in most Western parts of the world.

The US is composed of a heap of immigrants that migrated to the US and to a point intermingled culturally to come up with a new country / culture. The Anglo-Saxons were a people made out of immigrants from Germanic Europe that migrated to what is now England and mingled with indigenous British groups, tracing back to the 5th century. It's often used to refer to the language spoken in England and eastern Scotland unti…

The Normans weren't French or Viking, they were their own thing just like the Anglo-Saxons. The concept of Frenchness wasn't even well defined then.

Re: How to Lose Money

#273

Post by Bakary »

finiteseries wrote: post #82
rozab wrote: post #60

Earlier quoted context omitted.

The term has a more complex meaning in America. https://en.wikipedia.org/wiki/White_Anglo-Saxon_Protestants#...

Every American cited in this section, Anglo-Saxon in modern usage , is dead. The only remaining usage of Anglo Saxon in the contemporary USA is as part of the already antiquated “WASP” term. Anglo Saxon in reference to the US is in my very-online anecdotal experience roughly ~70% French speakers, 15% continental Europeans, and 15% race based nationalists. Americans usually just say “white”, even when specifically ref…

To be more precise, Anglo-saxon in French refers to the anglosphere and its culture. It's a commonly used word with neutral connotations

Re: How to Lose Money

#274

Post by caffeine »

dbancajas wrote: post #243
caffeine wrote: post #181

Earlier quoted context omitted.

Most underrated comment, this is hilarious. "More than 80% of options expire worthless!"

source on this claim?

It's not a claim, it's a reference to a reddit trope which is funny because it's technically true (i.e. by construction most options do indeed expire worthless), but so incredibly stupid and naive.

Obviously the idea that it's generally better to buy or sell options (or any asset) is idiotic - if the asset is mispriced, you trade in the direction to take advantage of the mispricing.

I assumed this was the joke my parent comment was making as well.

Re: How to Lose Money

#275

Post by caffeine »

scsilver wrote: post #219
caffeine wrote: post #168

Earlier quoted context omitted.

Sorry but this comment is full of misinformation. > whoever is on the other side of the contract is predicting the opposite of whatever you're thinking. If you are a retail options trader, the person on the other side is a professional market maker who doesn't have a "prediction" the way you'd think about it. He made his money at the moment you did the trade, because you traded at a disadvantage relative to the fair…

What are vols and building curves? The factors that effect extrinsic values? Volitilty and time?

"Building a curve" means defining a function of where you think volatility should be as a function of strike and expiration.

https://www.investopedia.com/articles/stock-analysis/081916/...

It gets substantially more complicated, but that's a layman's explanation of what it actually is.

Re: How to Lose Money

#276

Post by caffeine »

metafunctor wrote: post #226
yreg wrote: post #139

Earlier quoted context omitted.

The strategy forces you to time the market. You might get unlucky by holding cash during a market rally, then buy back for a dump. An investor who sells when they think the market is going to go downhill, with the intention to buy back later is not acting as an investor but as a trader . That's why hedging with options is less risky (and less profitable in the best case). edit: My use of word 'unlimited' applies if y…

Yep, then I agree. I'm not advocating for trying to time the market, or holding cash instead of being on the market. But selling your position simply does NOT mean you take on "unlimited loss potential". It's simply being outside of the market, which means you're missing out on gains. It's not like selling stock is suddenly the same as shorting the same stock. I think the terminology here is clear-cut and well establ…

I get what you're saying and I think your terminology makes sense.

But the way to understand this is to reframe your view of "money" from being some special, neutral thing to just being another asset.

At any given moment, you could own $1000, or some gold, or some bitcoin, or whatever else. There is nothing special about the fact that it's $ you're holding rather than DOGE or SPY.

So imagine a 2-asset world, that has SPY and $ in it. You are holding $1000 right now, and the market goes from 1 SPY = $1 to 1 SPY = $1000. That is a loss. Denominated in SPY, you just lost 999 SPY.

Re: How to Lose Money

#277

Post by notyourday »

dbancajas wrote: post #220
notyourday wrote: post #93

Earlier quoted context omitted.

I think it is rather well known since Taleb's book came out that deep OTM options, including LEAPs tend to be mispriced as there's just not enough data to model better pricing.

what is Taleb's book?

The Black Swan

Re: How to Lose Money

#278

Post by ljf »

DC1350 wrote: post #169

> Do things because you have genuine interest in them... Don’t start out with a singular goal of making money. I really hate advice like this. Have you ever seen a business before? Have you ever met a person? Pretty much no interests are monetizable and almost all companies are doing really boring work. I don’t believe anyone in the world is truly passionate about things like payroll software. If I followed my intere…

I find this a little sad.

When I was at university I would find all sorts of crazy passions/hobbies/interests - building a projection TV from parts, improving my mobile phone signal/look/battery life, figuring out how to get logos and ringtones into my phone for free. The first two turned into hobby businesses that made me drinking money for years and even rent some months, the logos/ringtines got me my first web job.

Years later I was determined to do something interesting with video, and ended up starting an interactive video company with a friend, that to a degree still runs today.

I turned my passion back to mobile phones (as I loved playing with them figuring out what made them fun, and how sites could b great or terrible on mobile) and got a great PO gig as a mobile PO before showing how what we built could run the whole desktop site far better faster and cheaper, and becoming CPO of the company.

Maybe I've been stupidly lucky (I can believe it) but I've always had an interest in the paying work that I do, and usually am able to link it to a passion of mine - either because that is what I set out to do, or because I am well able to find that in the role and the people I work with.

I'm really sorry if you don't have that passion, and/or have only worked with people who are the same. Try doing what you love or at least enjoy - you might like it!

--

Edit - and on the payroll comment, I connected with the owner of SimpleTax years ago, and he totally had that passion. As a small business owner he was sick of doing his taxes and set out to make it easy for himself, the tool he made worked well so he dogfooded a basic site in Portugal, and then brought it to the UK where the tax system was similar and the market was bigger. When we met he was so passionate about what he was doing, why he was doing it and what it gave to his customers.

Re: How to Lose Money

#279

Post by konha »

dbancajas wrote: post #220
notyourday wrote: post #93

Earlier quoted context omitted.

I think it is rather well known since Taleb's book came out that deep OTM options, including LEAPs tend to be mispriced as there's just not enough data to model better pricing.

what is Taleb's book?

Nicholas Taleb - Antifragile

Might also be one of his other books like Black Swan (I haven‘t read them all), but I think Antifragile mentions using options to mitigate risk in a portfolio.

Re: How to Lose Money

#280

Post by eloff »

dannyw wrote: post #59
aphextron wrote: post #5

>The nice thing about options is that there isn’t just one way to lose money. No, you can lose money in many different ways – far more than I can write on this page. This is the most important lesson of options. It's never just a coin flip. You have an unimaginably huge number of factors riding against your success. It's not even remotely close to a 50/50 win/lose scenario. There are a million ways to lose, and just…

Earlier last year around May, when the stock market seemed to pick up after the COVID crash, I purchased a number of deep OTM LEAPs (long expiry options; until early this year). They were incredibly cheap. I often had trouble finding a market maker for those. I only chucked about $2000 in, but these options have grossed $15,000 in realised returns and $25,000 in unrealised returns. Options allowed me to make a “bet”…

How did you find those options and decide they were a "good deal"? I'm curious about the details around how you implemented your strategy.
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