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

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

#71

Post by ausbah »

mywittyname wrote: post #26
substation13 wrote: post #23

Earlier quoted context omitted.

> 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.

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.

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?

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

#72

Post by vgt »

NovemberWhiskey wrote: post #28

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.

(I worked in equity options market making in the past)

I'm not sure this is such a good idea.

Professional companies that do equity options market making have major natural advantages over you:

- They are at the front of the line of any order if they're on the NBBO, so they're going to capture the spread

- They get order flow from offline brokers, which tends to be high volume and have higher edge

- They do gobs of volume every day and hope to make a fraction of a penny per transaction.

- A typical market maker makes markets in 500+ stocks at any one time. Good luck doing that on your own.

- They've invested in being as physically close to the actual exchanges as possible so that they can be first to respond

- They're rarely greeks neutral beyond delta

- As registered market makers, they have tax advantages you do not

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

#73

Post by jnwatson »

MuffinFlavored wrote: post #47
i_call_solo wrote: post #5

Earlier quoted context omitted.

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.

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.

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.

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

#74

Post by adabyron »

ivanche wrote: post #52
cactacea wrote: post #25

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.

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.

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.

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

#75

Post by horsawlarway »

MuffinFlavored wrote: post #67
NovemberWhiskey wrote: post #28

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.

That is one way/the best way to make money options trading. Is there any wiggle room in that statement for the alternative? If retail options traders come out ahead winning overall 15% of the time... is that worth pouring time into? It becomes a personal decision on whether you should risk your resources/time given those odds. The question I have is... why do some people win and some people lose? It can't just be luc…

I mean... It really can just be luck.

Even the absolute rock star traders have a nasty habit of regressing to the mean on a long enough time line.

It just turns out that when you have a several million participants - some of them have "a long enough time line" of 30+ years.

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

#76

Post by jnwatson »

ramesh31 wrote: post #3

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 cal…

Odds and expected value are different. There are plenty of 90% plays in options trading. There aren't in the casino.

Expected value though...

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

#77

Post by NovemberWhiskey »

dsfyu404ed wrote: post #58
NovemberWhiskey wrote: post #28

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.

This is terrible advice for a retail trader. Don't pick a fight with the pros. Find a dusty corner they don't care about and pick up the scraps. (this rule applies well to a lot of professions, not just high finance)

It's not advice for a retail trader; it's advice not to be a retail trader.

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

#78

Post by adabyron »

DontchaKnowit wrote: post #43
3pt14159 wrote: post #10

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. Ther…

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) ha…

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.

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

#79

Post by narrator »

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.

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

#80

Post by zer0tonin »

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.

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