The key to exploiting LLN is to avoid “game over” scenarios. You have to survive and stay in the game in order for LLN to converge.
If let’s say your expectation of winning in the long run is 0.7, you’ll only achieve this if you don’t get wiped out anywhere in the process (if you do your expectation drops to 0 immediately).
Also known as "it's easy to become a rich man, if you start out as a rich man".
Realizing a positive real return is not very hard - just buy the index or some real estate. If you start with a large amount of capital, you can simply watch it multiply, and, for the adventurous, maybe risk some of it into more speculative deals.
If you start out with just the human capital of your hands and brain, any reasonable rate of return will be squashed by living expenses and basic quality of life, dependents etc. You will need many decades to build enough wealth using the same methods a rich man uses, and by that time your own human capital starts to depreciate and you are forced to move to a capital conservation strategy.
So, to make it big as a poor person, you always have to take on crazy risks that the rich never would and/or be exceptionally lucky, or be extraordinarily talented and hardworking - to an statistically implausible degree - so as to make your starting human capital much more valuable.
You will always find the rags to riches story presented as a tale of hard work and determination, but rarely will any "self made billionaire" acknowledge their immense luck. The entire VC space is basically an attempt from capital owners to cash in on this statistically rare phenomenon, by hedging their bets on the destinies of many many people attempting to make it big.
Maybe you meant "and possibly", since otherwise the 'or' there detracts from the point I think you're trying to make (that ludicrous amounts of wealth requires luck regardless of what talent, skill, or determination you bring).
I have often wondered why the price of the option does not naturally find a level that exactly cancels out the trade?
Edit: Sounds too challenging - I am interested in your take on risk management, please expand. Esp with red to why options are priced at a level where they make a profit? (my perhaps limited understanding of options is I am betting A will go up 10% but if A goes down 5% I can buy an option to purchase A at the lower price. My instinct is at some point there is always a losing side. Why enter?
Kind of. Fundamentally risk management comes down to bankroll management. And one workable general approach is the Kelly criterion[1] or something like it. However, unlike casino games, with options we don't know the true odds and have to estimate them in most cases. And there are other risks like theta, which is how all else being equal an option loses premium value as expiration approaches. Therefore we can't just use Kelly directly. A trivially simple strategy that is suboptimal, but is good enough for learning is to never risk more than 1% of your trading bankroll[2]. The end result is that as you make winning bets your bet size increases and as you make losing bets your bet size decreases. Remember your goal at this level of knowledge is hands on learning with some skin in the game to sharpen your attention.
In the prior paragraph the trivial basic risk management strategy is "never risk" more than 1%. The reason I say never risk rather than never bet is because when trading options you can lose more than you bet! In fact you can potentially go to zero. A simple example is selling an uncovered call, that is to say selling someone the right to buy some multiple of 100 shares of a stock at a fixed price while not actually owning the stock to sell to them if they exercise the contract. Therefore, if the contract is exercised you have to go and buy however many shares are needed to cover the call. Since there is no limit to how much higher the market price can be than the call's strike price, you can lose an unbounded amount of money from a bet that actually increased your cash on hand when you entered it. Most (all?) trading platforms have some notion of options levels. I highly advise not requesting the level that lets you make such bets. I personally don't see any good point to them[3] and for a slightly increase in premium you can make very similar bets without the unlimited downside by using spreads.
If you are unspeakably unfortunate or otherwise consistently make losing bets, then even solid risk management can result in your ruin. However, it will be a slow process and hopefully somewhere before disaster you will conclude that trading derivatives isn't where your gifts lie and preserve what remains of your capital.
> I have often wondered why the price of the option does not naturally find a level that exactly cancels out the trade?
Options markets aren't perfectly efficient. Furthermore, the typical leverage is 100:1, which magnifies even small pricing inefficiencies. In fact, there isn't even agreement on how to price options at all. The Black-Scholes model[4] is just one popular model and many traders think it has problems.
> My instinct is at some point there is always a losing side. Why enter?
Yes, derivatives trading isn't investment, and there is always (usually?) a winner and a loser for every trade. However, there are market participants that make trades that set out to make a loss. For example, A trader may need to execute a hedging strategy and one leg of it will lose money if his primary trade goes as he hopes. Nevertheless, the opportunity remains to potentially be the counterparty on hedging leg. This is a pretty complicated area and I don't pretend to have a deep understanding of it, but if you dig in you'll find plenty of discussion.
There are also market participants who are just making bad trades. When you start you'll probably be one of them, which is why I emphasize risk management. Their counterparties also have a good opportunity to profit.
[1] https://en.wikipedia.org/wiki/Kelly_criterion
[2] And that bankroll itself should be less than your total financial net worth (IE paper assets like cash and stocks and so on, not real estate). Don't bet your emergency fund and so on. How much less depend on your own circumstances and is more a general matter of savings allocation than anything derivatives trading specific.
[3] But as I said I'm not an expert, just a dabbler who did OK. Perhaps some sufficiently advanced trader can come up with a good reason to make such a bet that isn't just based on hubris and wishful thinking.