No, You Aren’t Going to Get Rich by Options Trading • Hacker News Board

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

#161

Post by MuffinFlavored » Thu, Nov 10, 2022, 6:07 PM UTC

Kon-Peki wrote: post #41

jawns wrote: post #9

Earlier quoted context omitted.

> 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…

> 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.

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?

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

#162

Post by kelseyfrog » Thu, Nov 10, 2022, 6:09 PM UTC

logicalmonster wrote: post #113

kelseyfrog wrote: post #100

Earlier quoted context omitted.

Right, so in case it's not clear, people are asking you to quantify "basically" and "essentially" with math to get a number out. English words aren't going to make your point. They want you to back it up with a statistical analysis.

> people are asking you to quantify "basically" and "essentially" with math to get a number out You're hoping to see a specific number? What number are you even asking for? To me, your comment doesn't make even a tiny bit of sense because we're not talking about a specific quantity of a stock at a specific price for a specific time period, we're just talking about the general principles of basic option strategies.

That's the beauty of outlining a methodology. You'll need to answer a few things but most importantly, how do you quantify risk when executing your strategy ie:selling calls?

It feels like you're going off vibes, which is fine, but what's irking people is that "basically" and "essentially" are weasel words that make it seem like you're trying to launder gambling as investing.

Maybe a better question to start with is, which measures of quantitative risk are you familiar with and how to they play into your strategy?

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

#163

Post by mikeyouse » Thu, Nov 10, 2022, 6:09 PM UTC

moneywoes wrote: post #142

vgt wrote: post #132

Earlier quoted context omitted.

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'…

If the expected value is positive that means in the long run it should be fine right?

In the long run, we're all dead...

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

#164

Post by unmole » Thu, Nov 10, 2022, 6:13 PM UTC

> 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.

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

#165

Post by polishdude20 » Thu, Nov 10, 2022, 6:13 PM UTC

d23 wrote: post #118

lijogdfljk wrote: post #110

Earlier quoted context omitted.

Recommend any reading to learn index funds?

I read "The Simple Path to Wealth." But honestly, the TL;DR is pick a low-cost broker (like Vanguard) and put your money into something broad, such as VTI for the United States stock market. You could also mix in a world index and bonds, but the expected return on both are lower. All about your own risk tolerance.

Just in case I missed anything... When you consider compound interest, it's not assuming you reinvest that money or anything. You just pick an index fund and keep adding to it every month for years and that's enough?

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

#166

Post by mikeyouse » Thu, Nov 10, 2022, 6:14 PM UTC

belter wrote: post #95

Except if you are Hillary Clinton ;-) 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.

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.

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

#167

Post by hristov » Thu, Nov 10, 2022, 6:15 PM UTC

logicalmonster wrote: post #152

hristov wrote: post #136

Earlier quoted context omitted.

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 whee…

> 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. I'm not understanding your comment. Who is forcing you to sell below market value and buy above market value?

The option contracts you wrote are forcing you.

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

#168

Post by jeffreyrogers » Thu, Nov 10, 2022, 6:15 PM UTC

MuffinFlavored wrote: post #159

jeffreyrogers wrote: post #148

Earlier quoted context omitted.

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 d…

but if I hold the underlying long in the first place, I’m bullish in it, and I don’t want my shares to be “called/exercised” away from me, no?

Yes, but you might think it will appreciate less than other people do and expect to make money by selling calls on average.

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

#169

Post by NovemberWhiskey » Thu, Nov 10, 2022, 6:19 PM UTC

MuffinFlavored wrote: post #98

NovemberWhiskey wrote: post #77

Earlier quoted context omitted.

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

It's advice for a retail trader on what they are up against, and it confuses me greatly on how retail traders can look at all of the evidence that they shouldn't, and they still do.

It's a misunderstanding to think that retail traders are "up against" the trading desks of the big market makers: that implies that they're playing the same game, which is not the case.

The goal of a market maker is to trade as much as possible, on either side of the book, with the widest possible spread that remains competitive, while keeping within risk limits.

Most retail option strategies are based on beliefs about the behaviors of the underlying. Like, I think this stock is going to go up, so I'm going to trade a strategy that makes money when that happens (probably with some leverage, and hopefully with some downside protection).

They're not thinking about smile and calibrating stochastic volatility models and looking at their cross gamma and trading OTC exotics to lay-off their risk.

One strategy depends on discipline, scale, operational excellence, deep quantitative analysis and risk management. The other depends on clairvoyance.

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

#170

Post by benj111 » Thu, Nov 10, 2022, 6:20 PM UTC

unmole wrote: post #164

> 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 spre…

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 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.