Options trading is literally gambling, so this would be unsurprising. Robinhood made it much easier for people to get into.
However, you can also do rather conservative options trades (writing out-of-the-money calls on stocks you own and want to sell anyway, for example) and bring in extra money.
This is my preferred strategy as well.
Would hate to have been selling put options on VIAC when Archegos shit the bed on $20B with >4x leverage. Good luck foreseeing that.
To the average ignorant trader, sure. Otherwise this statement doesn't hold water. You should really do some research before making such silly uninformed claims.
Now, I know you're gonna say you can lose all your money when you buy shares, but no -- that very rarely, if ever, happens. If you buy a dividend stock than it's even better as a long-term investment.
The only parties options trading isn't "literally gambling" for are the ones selling the options like market makers (Citadel). They know people like to gamble and they're happy to take the other side of the trade because it's free money when they hedge properly (sounds like a casino, doesn't it?).
Anyone who buys options is literally gambling.
I guess you also believe the entire insurance industry is gambling too. Out of curiosity, what parts of finance do you think aren't gambling?
If you categorize all speculative activity under uncertainty using the same word, that word ceases to be useful.
Buying options, unless you literally buy every option that exists, is not even close to similar.
Did I adequately address your strawman?
Have you ever priced a derivative? What about the estimation of future/realized risk using implied volatility doesn't seem "rooted in statistical analysis" to you?
Just like you pay health insurance premiums to mitigate against costlier health risks.
You own 1 XYZ at an average price of $200.00. It is trading for $300.00.
You purchase an option to sell 1 XYZ for $300.00, which costs you $10.00, and expires in 3 months.
You just paid $10 to guarantee a minimum profit of $90.00 in 3 months, regardless of whether the price swings down.
There isn’t any morally harmful transaction occurring here, IMO.
It’s actually less risky than owning a stock for 3 months.
Is this transaction a reprehensible one, for you?
To be clear, we’re not trying to say that all options are created equal. Naked options (where you have no position) are in fact straight up gambling, at least insofar as I’ve tried to reasoned about them.
Anyone can sell options, not just institutions. And it's still gambling, just with better odds. You can still lose all of your money on the selling side. Naked options even come with the risk of losing more than all of your money. The whole thing is just one big casino with everyone betting against each other to see who's right.
> Naked options
Us plebs aren't allowed to write naked options, that privilege only belongs to institutional actors.
When you to sell the underlying to cover. It's right there in the name. Of course you lose money, it's just that your downside risk is capped.
> Us plebs aren't allowed to write naked options, that privilege only belongs to institutional actors.
Yeah because you'll probably lose all your money. Would you rather be allowed to do something incredibly dangerous and then get met with a dispassionate, "Well, almost everyone fails at this but you tried anyway, should have known better! Thanks for playing."?
Writing any amount of uncovered calls where the present stock price is at least higher than the teens generally exposes you to more risk than the average American can absorb with their entire net worth.
That being said, if you really want to, there are places that will let you do it using margin if you guarantee you know what you're doing. Bad idea though.
If you have a question about options, you can contact the Options Industry Council at 1-888-OPTIONS (1-888-678-4667) or visit its Getting Started web page. On the OIC website, you can also read a number of publications, including the "Characteristics and Risks of Standardized Options" booklet.
Ofcourse if you know nothing about risk management, options, or finance in general, you can just use them as a gambling instrument.
Robinhood and others have been irresponsibly pushing options onto clueless individuals.
I'm concerned this will lead to more regulation, taking away this option for us commoners and leaving it to only the 'responsible educated betters' who run hedge funds and such.
Of course they do. And those little plastic roses they sell in a glass tube at the gas station also have a legitimate purpose. But we all know that's not why they're being sold.
The vast majority of retail options trading is just straight up degenerate gambling. Especially in communities like WSB. And honestly, is there anything wrong with that? It's a much more equitable situation than lottery tickets or a roullette wheel.
This line of suspicious thinking doesn't make sense to me. Options can be used as a speculative instrument, or for one of a number of other purposes (yield enhancement, insurance, volatility hedging, stock replacement, arbitrage, commodity market access, even multi-year investment), but the thing that makes options trading dissimilar from gambling is the simple fact that you are not playing a game of pure chance. There is a large element of uncertainty in the public markets but they are driven by information, and that is why some participants are able to make money.
If people want to blind themselves to information, then sure, you can call it a game of chance. But if I'm analyzing vol and backing out information implied by pricing in order to take directional views around underpriced catalysts for assets that only a handful of people really have the skills to evaluate in that way, am I gambling or am I speculating?
Some may say "all speculation is gambling" but I see a difference between those two activities. It would also be risky to rent drilling equipment and prospect for oil, but there is a science and method to wildcatting and few people would refer to it as gambling in the sense of playing slots or roulette.
Personally I also believe that people who play card games based on probabilistic reasoning are doing more than just gambling. In a sense, that's what casinos do. It's business at the very least, a form of work that in casinos provides a profit opportunity from entertainment and in the public markets provides a profit opportunity from contributing to the information efficiency of financial instruments.
That doesn't mean the market is rational, etc.
You can know all about risk management, etc, but there is no guaranteed winning strategy. Because options trading is gambling.
As I said elsewhere, calling everything gambling just because it isn't literally guaranteed is reductive and unproductive.
> Gambling (also known as betting) is the wagering of money or something of value (referred to as "the stakes") on an event with an uncertain outcome, with the primary intent of winning money or material goods.
Seems like a fit to me. Even if the expected outcome is positive, it is still uncertain, hence it is gambling. If you go to the casino and count cards at the black jack table, you have a positive expected outcome, however you are still gambling.
If you tell people your uncle goes to Vegas every weekend to gamble, they will have a markedly different reaction than if you tell them he goes and counts cards every weekend.
If you tell people your uncle just took out a huge loan to go to Vegas to count cards, they will have a different reaction still.
I don’t think it’s rational to talk about “options” as if they’re all created equal.
I think you’d find fewer people disagreeing with you, if you disambiguated by specifying naked puts and long calls.
Covered puts are downside insurance, like buying flood insurance for your home. It doesn’t make sense for these to be spoken about in the same category, but by talking about “options trading”, it gets lumped in.
Option traders - real ones, mind you - are sophisticated armies of statistics PhD's. I suspect their statistical advantage over Robinhood option warriors is probably a lot more than "slight".
Oh? I guess they forgot to ask me for my PhD at the door when I came to work for the first time.
Reading HN, you'd think every quant trading firm had the exact same culture and hiring practices as RenTech.
Depends what segment of the industry you call home, but I can think of several options market-making desks where no trader has a PhD, as well as several hedge fund traders and founders that don't have PhDs and trade options frequently or as their core competency.
"Good at math" doesn't require a PhD; I have some college friends who went on to do engineering PhDs at top research institutions, and they suck at the kind of fluid/heat math and probabilistic analysis that option traders think about. I have worked with PhD mathematicians who were good quants but lacked the stomach and mental clarity to run risk, and one who was so caught up in his math that he needed others to remind him about basic realities like earnings reports for his own positions. That last guy tried to start his own hedge fund and failed.
Outside of a few particular research advisors and fields of study, most of the math that you need to know to trade vol is faster to learn by reading papers and explanations on the internet than by studying for a PhD.
Ultimately what makes someone a good or bad trader is based more upon trade and strategy ideation, backtesting/validation, position sizing, etc, and the P&L is the scoreboard. Take a famous contemporary vol trader like Harsh Padia (or whatever other person you choose) and lock him in a room for a year with Excel, Robinhood, cable internet, a phone line, and a few grand, and he'll still find a way to make money.
> Someone playing with options on Robinhood isn't in a different league, they are playing a different game.
If this is true (I believe it is not) then it's yet another data point suggesting that the market is rigged against certain participants for the enrichment of other participants. Lest you think I'm being hyperbolical, I give you the example of that kid[0] who figured out that HFTs front-run large CME orders and placed his own spoof orders so that he would be able to trade the reversion. On the HFT side, you have many of these "traders, quants, and devs...over 50% PhDs" but their business model may well depend upon front-running new trades right when they posts to the order book, but before the higher-latency public can receive the information. Regulators protect the HFTs by treating the order book as public information, while treating retail practices that defeat their strategies as unlawful.
How much of that depends on a PhD?
better than the casinos getting the money imho.