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Comment by kristopolous | Hacker News Reader

I was on some Facebook thread and some people were posting screenshots of how they lost 100% during the pandemic... Like $20,000 -> 0 in a matter of weeks. It was extraordinary. They were all using WSB and doing extremely foolish options trades.

Before seeing that I would have claimed basically any sincere strategy in good faith would be a winner right now. Clearly no, there's plenty of people who managed to burn through thousands in these conditions.

Really illustrates the difference between gambling and investing.

It's probably excellent advice to never look at WSB and regard it as 100% noise.

Randomly drawing letters out of a hat and buying those stocks would have produced dramatically better results.

Edit: i just bought a $100 or so of 4 stocks by randomly selecting letters until I got a match. Let's see how this strategy pans out. I bet it won't go to zero

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Options trading is all or nothing. Yes, it's a way to multiply your profits, but it also multiplies your losses.

AAPL stock, from the release of the iPhone until now, has been an amazing investment.

Some amateur analysts would beat the professionals in predicting quarterly reports.

Then greed set in.

https://fortune.com/2013/03/04/the-rise-and-fall-of-andy-zak...

Just imagine if investors in his fund had just bought the stock instead of options (calls).

Similar situation as above.

Don't invest what you can't lose. Slow and steady and living below your means wins the race.

USA tax laws favor investment income over labor income. If no wage income, first $75k of qualified dividend income is federal tax free. Most qualified dividends pay 2-4% so you need $2 million dollars to get $6k post tax dollars a month.

didnt realize that link was behind paywall. It won't happen again.

Gist of the story is that an amateur law student was amazingly good at predicting AAPL earnings every quarter. Graduated, and started his own hedge fund.

Publicly advocated buying options because AAPL could only go up bc profits were increasing. That's also what he did with investors' money. Options expired worthless. All $$ lost.

AAPL price did not follow increase in earnings in straight line.

> I would have claimed basically any sincere strategy in good faith would be a winner right now

Options have more degrees of freedom than stocks. Since they're derivatives, those degrees must ultimately collapse to the delta, i.e. to the stock's price movement, as the sole non-zero sum source of profit. As a result, there are more ways for professionals to monetize their edge.

The money that professional investors make has to come from somewhere. I guess a part of it is coming from these clueless people.

The stock market is not zero sum. The collectives market cap increases every year. Options are zero sum. There's someone at the other end of every trade and their gains/losses are your losses/gains. That's largely why I think of wsb style options as gambling as opposed to investing.

Right, but there are also traders who have made 10x or more. Many have turned a few thousand into 5 or 6 figures. You have to find the right strategies and traders to follow. There are traders who demonstrate skill, by consistently making profits. This involves optimal position sizing and optimal call option duration and strike prices and other factors such as momentum.

> There are traders who demonstrate skill, by consistently making profits

With a large enough group consistently making profits would not necessarily be a demonstration of skill. Even if the returns were completely random several traders would constantly perform well above average.

This is why this game is so dangerous. Also self reporting introduces bias too (biggest winners likely to report, everyone else not so much).

To be fair, I think WSB bucks this trend a little. People report the huge losses there, and it's part of what makes it so interesting.

In fact, I would argue that the most well-known posts are often from people losing huge amounts of money, eg. "Guh".

How do you differentiate those skillful traders from the lucky ones who somehow managed to beat the house despite being an amateur from WSB?

IMO, the only reliable way is to watch them over a 50-plus-year period and look backward.

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