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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

#81

Post by SilasX »

There's a part that refers to the research, but the way they describe it sounds confused, like the author doesn't understand the domain. (Or maybe I'm not using the terms in the standard way?)

>Researchers Svetlana Bryzgalova, Anna Pavlova, and Taisiya Sikorskaya found that retail options investors lost over $1 billion during a bull market from November 2019 to June 2021. Their calculations don’t include their estimated $4.13 billion spent on the trading costs, i.e. wide bid-ask spreads that incur immediate losses for options traders. And lastly, we can’t forget the $800 million burned in that time period on commissions.

Wide bid-ask spreads are a trading cost? That incurs an immediate loss? That's independent of the loss quoted in the return? If you (for some reason) do your options trading by only accepting standing bids/asks (market orders), then yes, you get a bad price ... but that would be rolled into the return figures, not an independent loss.

No matter what the bid/ask spread, you can place an order in the middle and wait for a fill.

And commissions aren't a "trading cost" but something that goes in a different (non-trading-cost) bucket?

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

#82

Post by spelunker »

highwaylights wrote: post #29

Honestly 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…

Options in particular are a trap IMO because they require a LOT of active attention to the market day to day, and in the end aren't really worth it. I also dabbled in options a while back, and ditched them after losing much more than I should.

I did learn a lot about the stock market while doing options though, so I guess that is a plus.

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

#83

Post by H8crilA »

vgt wrote: post #72
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 v…

Do you think that the (often criticized, perhaps way too much) ability to sell naked short is meaningful too?

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

#84

Post by gmadsen »

gxs wrote: post #40
highwaylights wrote: post #29

Honestly 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…

It's fun to me to stock pick and I rather enjoy it fully aware of the risks. My solution is to set aside a small amount for this purpose and the rest, as you said, put away into index funds.

I justify it as its probably better odds than a casino, and more enjoyment. Nothing wrong with a yolo account, if everything else is squared away

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

#85

Post by zhdc1 »

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…

> If the investemnt bank issuing the index fund goes bankrupt, you lose your money - see Lehman Brothers.

The actual assets are held by a separate custodian.

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

#86

Post by H8crilA »

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…

Banks generally do not issue index funds / ETFs. They're often the APs, but that poses very little risk to the funds. I cannot recall the last time I saw an ETF that was issued by a bank.

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

#87

Post by bena »

highwaylights wrote: post #50
DontchaKnowit wrote: post #30

Frankly, just reading the headline, I disagree. First of all, yes in a broad sense most people are gonna get fucked trading options if you don't know what they're doing. I know what I'm doing and my strategy is exclusively long equities. But you can absolutely make metric fuckloads of money trading options and there are some trades out there that ain't that hard to figure out. For example, you can print money on a re…

Double digit percentage returns every two months you say? Why with a starting balance of $10,000 that would be (at the very lowest end of that range) over $1.25 billion dollars after 20 years. If you don’t mind me asking, what was the offer that tempted you to give that up?

I feel a sort of gambler's mindset here as well. I'm sure you can get the occasional double digit percentage return every couple of months, but it is also couple with a lot of losses as well.

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

#88

Post by lisper »

rexreed wrote: post #69

This will sound super basic and maybe even trite, but the way to get rich is to hold assets that increase in value. I know it's stupid and basic, but that's the way. Assets could be hard like physical assets or real estate, but those assets trade long-term potential for asset value growth with liquidity. The best assets are the ones that not only increase in value at a significant rate, but also provide cash / income…

> Venture capital doesn't invest in businesses. It's the biggest head fake there is. They invest in assets, high risk, fast growth assets.

That's a bit too facile. Yes, VCs invest in assets, but the assets they invest in are businesses and not, say, commodities or derivatives or options, which are also high-risk and (potentially) fast-growth assets.

VC's invest in businesses, but not just any businesses. They want businesses that can go from inception to IPO very quickly. Businesses like that are not typical (that's where most people get it wrong) but they are still businesses.

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

#90

Post by bob1029 »

I watched many friends blow tons of money this way. Even I was tempted and squandered a few thousand on bad bets before I learned my lesson.

The only investing strategy that allows me to sleep comfortably is to buy & hold shares in companies that I wouldn't mind working for. I've also got some small % of the portfolio dedicated to long plays on companies trying crazy ideas that I personally believe in.

At no point do I invest based upon time-series data. I simply pick my desired targets and gradually accumulate shares indefinitely. Every time I tried to get more clever than this, my rate of return suffered accordingly.

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