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No, You Aren’t Going to Get Rich by Options Trading
131–140 of 223 posts
Re: No, You Aren’t Going to Get Rich by Options Trading
#132Earlier quoted context omitted.
(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 v…
Do you think that the (often criticized, perhaps way too much) ability to sell naked short is meaningful too?
I've heard this strategy referred to as "picking up pennies in front of a steamroller" - it works until the CEO is discovered to be a fraud, goes to jail, and stock loses 80% of its value in a week. Then you lose everything on a single position.
Market makers do this as a free way to cover delta risk in that direction. If you have +100 delta, selling 100 "units" (way out of the money options) is a nice way and doesn't carry any other greeks.
I've seen speculators do this, but they're playing with fire. I've seen an investor risk 9 digits to pick up $50k a minute before strike expiration, not realizing that the actual settlement is the next day (so adversarial events can still happen).
Re: No, You Aren’t Going to Get Rich by Options Trading
#133I 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.
Re: No, You Aren’t Going to Get Rich by Options Trading
#134Honestly 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 att…
The reasonable approach to options, if you’re not trying to go crazy speculating, seems to me to be hedging strategies. Or selling options to take a little each sale if you don’t mind the somewhat lesser risk dependent on the type of market at play. All that said, that’s my armchair take as I don’t mess with them outside of Wall Street Raider.
They can also make for a great entry/exit strategy:
Want to buy and hold a company but think it's a little too expensive right now? Sell a put, and make risk-free return while you wait.
Want to sell that tech stock you've been holding once it doubles? Forget your limit order, that's for the boomers over at vanguard. Sell a call today!
Re: No, You Aren’t Going to Get Rich by Options Trading
#135Earlier 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.
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Re: No, You Aren’t Going to Get Rich by Options Trading
#136Earlier quoted context omitted.
Wrong, it is inherently more risky. You are fooling yourself.
Please explain how so. If you buy the stock outright: you can lose everything if the company goes out of business. If you use a simple wheel, you can still lose everything, but the blow is blunted by any premiums you collect.
If you use a wheel, you will lose more on average. You will be guaranteed to sell below market value and to buy above market value. Yes, with the wheel you may end up with a little bit of premiums if your stock goes to zero, but in most cases you end up worse with the wheel than owning a stock. That is because, when you own a stock you buy it at market and when you decide to sell, you sell it at market. With the wheel you end up buying and selling at prices worse than market. And if volatility is high -- significantly worse.
Re: No, You Aren’t Going to Get Rich by Options Trading
#137Not 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 ba…
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.
Re: No, You Aren’t Going to Get Rich by Options Trading
#138Earlier quoted context omitted.
(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 v…
Do you think that the (often criticized, perhaps way too much) ability to sell naked short is meaningful too?
As of 2008, options market makers are not allowed to naked short. [0] The only remaining exemptions to restrictions on naked short selling are for equity market makers. These market makers are still subject to delivery requirements (T+2). Plus, most/all aim to end each day flat
[0] section III of https://www.sec.gov/investor/pubs/regsho.htm
Re: No, You Aren’t Going to Get Rich by Options Trading
#139Earlier quoted context omitted.
> But they don't actually invest in businesses. Yes, they do. > Yes, the asset happens to be an operating corporation. Not just any operating corporation. A business . Not all corporations are businesses. Not all businesses are corporations. VC's invest in corporations (almost invariably Delaware C corps) which are also businesses. VCs make equity investments in businesses, and not other asset classes. Saying that th…
Let me word it a different way. VCs invest in their asset ownership of the corporation, not in the business of that corporation. In this regard, I refer not to the legal structure of the corporation nor that VCs obviously invest in legally structured businesses incorporated preferably as Delaware C corporations, but rather I focus on the intent of the corporation (which is indeed a legal business as you've stated abo…
I understand the concept you are trying to convey but you are using the wrong words, and as a result you come across as naive and uninformed. You are making an observation about a VC's motivation and strategy. But the words you are using make it sound like you are talking about the structure of their investment.
There is no distinction between a corporation and "the actual business" of the corporation from the point of view of an equity investor. An equity investor buys shares of the corporation, and that's it. An investor might be motivated to make that investment because they want a return, or they might be motivated to make that investment because they are passionate about what the corporation does, but either way, they buy the same stock. There are not separate investment mechanisms contingent on an investor's motives.
It is true that VCs are motivated entirely by ROI, and this is an important thing to understand, but rendering that as "VC's don't invest in businesses" is wrong. It turns an important insight into a deepity [1].
(I suspect that this particular aphorism models itself after Ray Croc's famous quip that he was not in the hamburger business but the real estate business. But in his case it was actually true. Ray Croc never sold a hamburger. He sold franchises to people who sold hamburgers. That really is an important structural difference, and it's the reason that Ray got much (much!) richer than any of his franchisees. But in this case, the aphorism is flat-out wrong. There is no structural difference between what a VC does and what any other equity investor does, with the single exception that VCs never invest in companies that have already gone public.)
Re: No, You Aren’t Going to Get Rich by Options Trading
#140Earlier quoted context omitted.
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 :)
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 w…
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?