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

#201

Post by MikeDelta » Thu, Nov 10, 2022, 8:49 PM UTC

aeternum wrote: post #172

spacemadness wrote: post #144

Earlier quoted context omitted.

Apparently I really don’t understand options. Why would you sell a put and not buy a put or alternatively sell a call if you think a stock is going to go down? Or is this saying you believe it’s too high and will remain high likely past the expiration date of the option? Likewise with your second example.

Selling a put can be thought of as similar to a traditional limit buy order. For example say you think Meta is a buy at $90. But Meta is trading at 109.57, so sell a put with a strike of $90 and collect a premium in return for agreeing to purchase a stock at $90. If the stock hits 90 or below the contract will be executed and you will purchase the shares at $90 (same as you were going to do with a limit order). If it…

Note that this means that, in a more extreme case, if Meta drops to $40, you still have to buy at $90 via the option, realizing a loss of $50 per contract.

It's getting paid for taking on risk. A limit order will execute at your level or better, not worse.

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

#202

Post by brewdad » Thu, Nov 10, 2022, 9:08 PM UTC

pmoriarty wrote: post #119

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? 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." The lottery is another good example. How many people bought tickets in the recent $2 billion lottery, knowing full well their odds of winning were close to zero?

I started playing once the game hit almost a $billion. I won $8 over the next four drawings! Of course, I spent $40. :)

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

#203

Post by MikeDelta » Thu, Nov 10, 2022, 9:24 PM UTC

zer0tonin wrote: post #80

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 som…

I know a lot of professional option traders who understand options and markets without knowing the exact math. Don't ask them about brownian motion, but they know very well how to trade implied vs realized vols and skew.

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

#204

Post by brewdad » Thu, Nov 10, 2022, 9:24 PM UTC

alangibson wrote: post #153

I read a lot of positive opinions in this thread about index funds. Consider for a minute how much money has been flowing into My guess is that we're about to see a bubble pop over the coming recession that no one realized was there.

I don't know if it's a bubble per se or more like the Social Security system in the US. It will be interesting to see what happens to these index funds as the younger portion of Boomers and older Gen X retire and start drawing down their 401(k)s and other accounts. Older Boomers had pensions, so weren't as reliant on amassing personal savings for retirement, but that's far less common as you move into younger populations.

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

#205

Post by [deleted] » Thu, Nov 10, 2022, 9:31 PM UTC

clejack wrote: post #175

spacemadness wrote: post #144

Earlier quoted context omitted.

Apparently I really don’t understand options. Why would you sell a put and not buy a put or alternatively sell a call if you think a stock is going to go down? Or is this saying you believe it’s too high and will remain high likely past the expiration date of the option? Likewise with your second example.

You can sell a put at a strike price you believe is reasonable and collect the premium for guaranteed. If the strike is hit, you've bought in at what you believed was a reasonable price at the time of your contract creation. You may technically show a "loss," but you're getting something you wanted at the price you wanted. If you buy a put instead you're effectively saying you strongly believe that the stock will fal…

[deleted]

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

#206

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

Archelaos wrote: post #59

A warning about index funds, that were mentioned a couple of times in different threads here. If the investemnt bank issuing the index fund goes bankrupt, you lose your money - see Lehman Brothers. You can mitigate the risk by buying from different issuers. However, the bankruptcy risks might still be too closely related; in other words: there is the risk of a domino effect of bankruptcies of investment banks in a fu…

CORRECTION: As others have pointed out, many ETFs secure the investment with a custodian. This makes these ETFs immune to a sole bankrupcy of the issuer. In case of a domino effect or a close interwovenness between issuer and custodian this might turn out problematic nevertheless. But there are many kinds of ETFs, most notably swap-ETFs, that are not backed by real stocks. For these, what I have written applies without restriction.

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

#207

Post by Adrox » Thu, Nov 10, 2022, 10:44 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…

You didn’t read the articke, did you? According to the study cited in thr articlr People on average loose 4.5% a month:

> one longitudinal study of nearly seventy thousand Dutch retail investors. The findings back up the story of the current wasteland of retail traders over the last two years. Over six years, researchers found that retail investors who participated in options trading lost, on average, 4.5 percent monthly, more than halving their accounts within a year.

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

#208

Post by Adrox » Thu, Nov 10, 2022, 10:47 PM UTC

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…

You didn’t read the article, did you? They mentioned a study that people on average loose 4.5% a month, 50% a year:

> one longitudinal study of nearly seventy thousand Dutch retail investors. The findings back up the story of the current wasteland of retail traders over the last two years. Over six years, researchers found that retail investors who participated in options trading lost, on average, 4.5 percent monthly, more than halving their accounts within a year.

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

#209

Post by guga42k » Thu, Nov 10, 2022, 11:51 PM UTC

spacemadness wrote: post #144

aeternum wrote: post #134

Earlier quoted context omitted.

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!

Apparently I really don’t understand options. Why would you sell a put and not buy a put or alternatively sell a call if you think a stock is going to go down? Or is this saying you believe it’s too high and will remain high likely past the expiration date of the option? Likewise with your second example.

What you describe is directional trade (aims to capture up/down moves in underlying).

Investment banks usually trade in volatility space, also called delta hedged. Main idea they would sell options (calls or puts) by adding extra premium to the fair price. At the same time they make the whole portfolio delta neutral by buying and selling underlying instruments on daily basis. By having significant portfolio one could expect to leak less on the hedging process and may be use some correlation between underlyings and use index futures instead of individual stocks. The whole business is to capture the premium mentioned above without predicting up or down move.

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

#210

Post by unmole » Fri, Nov 11, 2022, 12:31 AM UTC

Adrox wrote: post #207

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…

You didn’t read the articke, did you? According to the study cited in thr articlr People on average loose 4.5% a month: > one longitudinal study of nearly seventy thousand Dutch retail investors. The findings back up the story of the current wasteland of retail traders over the last two years. Over six years, researchers found that retail investors who participated in options trading lost, on average, 4.5 percent mon…

> You didn’t read the articke, did you?

Right, I quoted multiple sections from the article without reading it.

Options trading is zero sum. Add in costs and for a retail trader (not investor) it becomes negative sum. It's not surprising that retail traders consistently lose money. I'm still not seeing the systematic fleecing.