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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

#181

Post by MuffinFlavored »

NovemberWhiskey wrote: post #169
MuffinFlavored wrote: post #98

Earlier quoted context omitted.

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 abo…

Is there any data that suggests retail options traders should not even attempt to be clairvoyant because "if this, then that" logic to the underlying instruments price and its movement is too naive to be successful, or

does a lot of the "technical analysis" (support/resistance, moving average crossover, volume/volume weighted average price, etc.) become a self-fulfilling prophecy?

there are other members that make up the market + its daily volume other than market makers. i agree, it isn't (or at least shouldn't be seen as) market makers vs retail traders. market makers don't care about direction from what i understand.

it's the high frequency trading hedge funds/funds running algorithms against institutional "whale" investors versus... i'm not even sure i can pretend to understand all of the participants that trade shares (or options) daily/weekly/monthly/quarterly.

there's a portion of psychology manipulation to it as well, right? "oh my gosh, this is going up but it might be a bull trap" aka... some people believe there are entities/an entity behind the scenes driving the price up to "suck people in", and vice versa (bear trap).

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

#182

Post by MuffinFlavored »

blamazon wrote: post #17
Cpoll wrote: post #13

Earlier quoted context omitted.

/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.

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.

> 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.

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

#183

Post by MuffinFlavored »

rr888 wrote: post #57
MuffinFlavored wrote: post #2

> 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…

> 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.

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?

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

#184

Post by mrguyorama »

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.

Everyone thinks they are special, have some special insight, or are otherwise more likely to be important than everyone else.

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

#185

Post by chollida1 »

unabridged wrote: post #127
MuffinFlavored wrote: post #103

Earlier 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…

> The strategy they are describing (selling covered calls) is actually less risky than holding the underlying.

Not necessarily. If you assume the idea is to make money, say a stock is at$100 a you sell a $110 call for $2

The stock then goes to $200.

You have lost $90 of gains to make $2.

That's a huge loss.

Selling covered calls decreases your downside slightly but earning the option premium but it completely destroys your upside by taking away any of the upside beyond the call's strike.

that's much riskier than just owning the stock outright as your downside is capped but yoru upside is unlimited.

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

#186

Post by NovemberWhiskey »

vgt wrote: post #132
H8crilA wrote: post #83

Earlier quoted context omitted.

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'…

>"picking up pennies in front of a steamroller"

... generally that refers to the strategy of writing (far) OTM options.

Like: the Dow is currently trading at about $49.44; and the bid/ask on a Nov 18th put with a strike of $40.00 last traded at $0.04. So you can write 25,000 of those and get $1,000 in premium. Those are the pennies.

You can't lose any money unless the Dow actually below $40.00 because those options will expire worthless. However, if the Dow goes to $39.00 ... then you'll be on the hook for $25,000. That's the steamroller.

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

#187

Post by mrguyorama »

cjrp wrote: post #36
phphphphp wrote: post #14

Earlier quoted context omitted.

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 ins…

"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.

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.

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

#188

Post by mrguyorama »

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.

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.

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

#189

Post by mrguyorama »

ausbah wrote: post #71
mywittyname wrote: post #26

Earlier quoted context omitted.

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?

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.

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

#190

Post by highwaylights »

polishdude20 wrote: post #165
d23 wrote: post #118

Earlier quoted context omitted.

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?

Great question!

I’m not an expert so someone correct any of this that is wrong, but there are broadly speaking two types of funds:

Accumulation and Distribution

Accumulation funds will do the reinvesting internally, so they really are set-it-and-forget-it vehicles.

(Distribution units hold the dividend returns as cash, i dont use these, I’m not really sure why anyone would but I assume there’s a tax reason somewhere).

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