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> 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 over again, approaching 100% of the time, but rather enough wins among the losses to keep some people hooked, while they eventually either get slowly drained or, in some cases, body-slammed. Couple that with a steady influx of new, intrigued customers, and there's enough fuel to burn for a while.

Oh yes, THIS.

And "making easy money" by trading stocks / options / other securities is a far, far better story to tell than "I got lucky at the casino" - which helps lure even more players into the securities casino.

(And, at least in my social group, folks who win or lose at the casino seem to honestly speak of their net gain/loss. Vs. I've yet to hear a single story about making money in securities trading which even hinted at whether the teller's trades added up to a net gain or net loss for the (say) year.)

> Have you ever been to a casino?

Some people view it as a form of entertainment, and most people view entertainment as something that is ok to pay money for. Keep it within your budget, and have fun. The exact same could be said for options trading.

I totally agree, btw, that you aren't likely to get rich options trading. But it certain can be a very fun way to test your skills at analysis and predictions.

but it’s counter-intuitive

what makes options trading fun? the allure of turning a profit

what does evidence show? not only will you not turn a profit options trading, you’ll realize losses

how is realizing losses fun when the goal was supposed to be to turn profit?

> what makes options trading fun? the allure of turning a profit

Absolutely, that is a major element of it.

> how is realizing losses fun when the goal was supposed to be to turn profit?

Well, if that is your goal, then I agree that it isn't going to be much fun.

Perhaps you are mistaken in assuming that everyone going to the casino or trading options has "turning a profit" as the primary goal. I don't think that is the case. It certainly never was with me. But I could be unusual ;)

"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. :)

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 instruments and come with a high risk of losing money rapidly due to leverage. 83% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high riskof losing your money.

And yet, Trading212 make huge amounts of money off-of CFDs, despite it being legally required for them to tell people that they will lose their money.

"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.

> 83% of retail investor accounts lose money when trading CFDs with this provider.

How many retail investors think they can be that 17% though?

It creates entire communities. You start following people who claim to have success/an edge but you can't see any actual statistics on their track record unless you put the time in to follow them. Think paid private Discord servers where you are paying for a tip on a winning trade.

> I could be wrong but wouldn't simple logic dictate that... most people stop doing something that loses them money?

Humans aren't meat-based Turing machines, they're living beings with emotions and impulses. Why do you think gambling addictions are a thing? Or drug addictions? Or any bad habit that we know is bad, but still do it because self-control is difficult?

> they're living beings with emotions and impulses.

Isn't that all the more reason they should stop after they experience the emotions of their first loss?

If all they experienced were negative emotions + losses, they'd stop sooner/retail options trading wouldn't be "such an epidemic".

Therefore, something I feel the article author slightly missed discussing, they win sometimes.

That's the data I'm interested in.

How often does a retail investor, irregardless of predatory Wall Street + high commissions + fees + whatever, come out ahead on an options trade? Once a week? Once a month? Once a year?

If they win 50% of the time and lose 50% of the time, maybe it's not that evil?

My theory is people are seeing the 'winners' post their gains on social media (like reddit /r/wallstreetbets) and so they try and go in and see if they can do the same thing. A lot of these people are in experienced and may not know what they are doing, with many losing money in the process

/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.

A decent amount of WSB posts used to be "got rect" also, whenever the market moved the other way.

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.

WSB also has a culture of essentially celebrating big losses. There's no shortage of examples of people losing their entire investments. It's a weird culture.

It's the same reason slot machines, lotto and scratch offs are popular despite their extremely low odds of winning. The dream of the big winner invokes something in us, especially those most susceptible to gambling addictions.

Odds of winning Powerball: one in 292.2 million

Odds of guessing SPY direction right through calls/puts right and getting 30% return: going to guess not that bad

I'm curious what the odds of making a profitable options play are. It's got to be less than 50-50 because of the time decay.

The great thing about options, like sports gambling, is you can find an option play that will give you whatever odds you want.

You can bet the underlying goes up, that it doesn't go up, that it moves in either direction, that it doesn't move in either direction.

There are plenty of 90% odds option plays. Keep in mind there's a big difference between odds and expected value.

To me, the big draw to options during the pandemic is that nobody knew what would happen. Normally, the little guy gets completely screwed because of information asymmetry. In that sort of environment it's more of a level playing field. Sure, cost were fairly high, but so was the volatility. It at least felt like you had more of a chance than normal. I had one option that I sold at break-even that would have 30x'd to $30k if I just held it two more months. That's a bigger potential gain than anything I'll ever see again, unless I play the lottery.

Now it feels like there's no point to options because things are more stable and the big guys have better intel. I might as well play the lottery - clear odds, no insiders, and less manipulation.

Why are casinos so popular? The answer is likely similar, and likely not because people come out ahead financially.

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.

> 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?

The trade payoffs are random. Its like a casino, they house takes a cut on each trade.

Ludomania is the answer you seek.

Edit also this: https://link.springer.com/article/10.1007/s10899-016-9659-x