Options Trading Renaissance Is Upon Us(marketrebellion.com)
marketrebellion.com
Options Trading Renaissance Is Upon Us
https://marketrebellion.com/an-options-trading-renaissance-is-upon-us/
6 comments
Hi! Thanks a lot for sharing the study.
I agree with your point. But it's also important to note that options trading can be both lucrative and risk-mitigating. For example, how would everyday investors protect themselves from a potential market crash?? They cannot bet against the market since short-selling is out of reach for the majority of retail investors.. But with options they certainly can. In fact, people can even benefit if stock prices stay essentially the same.
Indeed, it's very likely that most retail investors currently lose money while trading options. I traded options professionally in the fund for more than 8 years. There are numerous technicalities that people should be aware of. Otherwise, they are likely to make some basic mistakes that no professional trader would. For example, when someone owns a deep in-the-money call and the ex-dividend date is approaching, that someone should exercise his/her call and buy an identical out-of-the-money put. To my despair I found out (from Reddit options trading groups) that most people are completely unaware of that and keep on making basic mistakes, that in turn accumulate and cause retail traders to lose big. So essentially most ppl do not lose because the were wrong (let's say about the direction of Intel post-earnings release), but because the basic trading mistakes turn profits into losses.
Sadly, no retail brokerage offers any meaningful support to retail traders, be it Charles Schwab or Robinhood. It's also true to say that mistakes of retail traders amplify the wins of professional traders: in the past retails were called "dumb money" but now industry insiders refer to them as "free money".
At Strikes we aim to level the playing field for the retail options trader, by making sure ppl stay aware of all potential pitfalls and avoid making basic trading mistakes. We are still busy finalizing the app but this is the link to our waiting list: https://www.trystrikes.com/
Would love to hear your feedback!
I agree with your point. But it's also important to note that options trading can be both lucrative and risk-mitigating. For example, how would everyday investors protect themselves from a potential market crash?? They cannot bet against the market since short-selling is out of reach for the majority of retail investors.. But with options they certainly can. In fact, people can even benefit if stock prices stay essentially the same.
Indeed, it's very likely that most retail investors currently lose money while trading options. I traded options professionally in the fund for more than 8 years. There are numerous technicalities that people should be aware of. Otherwise, they are likely to make some basic mistakes that no professional trader would. For example, when someone owns a deep in-the-money call and the ex-dividend date is approaching, that someone should exercise his/her call and buy an identical out-of-the-money put. To my despair I found out (from Reddit options trading groups) that most people are completely unaware of that and keep on making basic mistakes, that in turn accumulate and cause retail traders to lose big. So essentially most ppl do not lose because the were wrong (let's say about the direction of Intel post-earnings release), but because the basic trading mistakes turn profits into losses.
Sadly, no retail brokerage offers any meaningful support to retail traders, be it Charles Schwab or Robinhood. It's also true to say that mistakes of retail traders amplify the wins of professional traders: in the past retails were called "dumb money" but now industry insiders refer to them as "free money".
At Strikes we aim to level the playing field for the retail options trader, by making sure ppl stay aware of all potential pitfalls and avoid making basic trading mistakes. We are still busy finalizing the app but this is the link to our waiting list: https://www.trystrikes.com/
Would love to hear your feedback!
"how would everyday investors protect themselves from a potential market crash??"
It's tough to predict market crashes. Investors who fear a crash can reduce stock exposure, especially in tax-deferred accounts where they don't need to worry about the tax consequences of realizing capital gains.
It's tough to predict market crashes. Investors who fear a crash can reduce stock exposure, especially in tax-deferred accounts where they don't need to worry about the tax consequences of realizing capital gains.
1. It's indeed not a trivial task to time a market crash. However, most recent crashes consisted out of series of crashes. So that fact would give retail investors some time to buy protection in terms of put options for example.
2. The approach you suggested would expose everyday investors to 2 risks: losing part of their savings and restricting their upside by cutting their positions. What could be an alternative way is to keep all their equity positions and write out-of-the-money covered calls, so they could collect the premium. And there are many more ways investors could hedge their risks with options.
Just in case: it was NOT a financial advise :)
2. The approach you suggested would expose everyday investors to 2 risks: losing part of their savings and restricting their upside by cutting their positions. What could be an alternative way is to keep all their equity positions and write out-of-the-money covered calls, so they could collect the premium. And there are many more ways investors could hedge their risks with options.
Just in case: it was NOT a financial advise :)
Hey, thanks for the comment! Options trading is suitable for bulls and bears. Even for those who think that stock prices would stay exactly the same, they can still can benefit from options trading.
P.S. your comments are shown as "dead", I suggest you to contact the administrator to sort it out..
P.S. your comments are shown as "dead", I suggest you to contact the administrator to sort it out..
This paper examines the impact of option trading on individual investor performance. The results show that most investors incur substantial losses on their option investments, which are much larger than the losses from equity trading. We attribute the detrimental impact of option trading on investor performance to poor market timing that results from overreaction to past stock market returns. High trading costs further contribute to the poor returns on option investments. Gambling and entertainment appear to be the most important motivations for trading options while hedging motives only play a minor role. We also provide strong evidence of performance persistence among option traders.