Intro to options

[CordMcNally]

Thank you for the cautionary words. I have been a buy and hold investor for over a decade. Despite multiple stock tips over the years, I have been able to tune out the noise and have never purchased anything but passive index funds or ETFs thus far. I generally am not prone to FOMO (still live in our starter home, drive a 10 year old Toyota with nearly 200,000 miles that I am not ashamed to park next to the Teslas). I know I don’t need to get outsized returns either as I already have a net worth that is 30x my annual expenses.

Rather than FOMO, I wonder if it’s boredom that is driving me to distraction!

I do feel though that the options marketplace, albeit decidedly risky is also prone to inefficiencies and behavioral issues may be at play. At this point, I simply want to learn more about this and it is quite possible that I may never put any money in.

Good investing is boring. There's no way to get around it. 98% of people who are raking in the bucks now will lose that money (and likely more) when things take a turn for the worse. People who aren't good with money typically don't keep it very long. Right now, a lot of people who aren't good with money are making a lot of money.

[DocFi]

I'll put my finger on it, figuratively speaking. It's FOMO. You're seeing all these people post about doing this stuff and making money. Your grocery bagger is probably giving you stock tips. You're probably hearing about it in the doc lounge from those who probably can't even balance their own checkbook and are still working well into their 60s because they have to. It's easier to make money when the entire market has nearly doubled in the last year. It won't always be like this or maybe for very long so tread carefully.

Thank you for the cautionary words. I have been a buy and hold investor for over a decade. Despite multiple stock tips over the years, I have been able to tune out the noise and have never purchased anything but passive index funds or ETFs thus far. I generally am not prone to FOMO (still live in our starter home, drive a 10 year old Toyota with nearly 200,000 miles that I am not ashamed to park next to the Teslas). I know I don’t need to get outsized returns either as I already have a net worth that is 30x my annual expenses.

Rather than FOMO, I wonder if it’s boredom that is driving me to distraction!

I do feel though that the options marketplace, albeit decidedly risky is also prone to inefficiencies and behavioral issues may be at play. At this point, I simply want to learn more about this and it is quite possible that I may never put any money in.

[Panscan]

if you believe the market goes up with time, isn't leverage going to be your friend in the long run? I mean I guess if you get over-leveraged you can get cleaned out, but a modest amount coupled with the circuit breakers make this pretty difficult

[CordMcNally]

Yes, this is the right take. But, the conclusion I would come to is that now is precisely the best time to go gangbusters on options, because it's a bull market.

Leverage is your friend, until it isn't. Right now, it certainly is.

It's a bull market, until it isn't.

[xraygoggles]

It's easier to make money when the entire market has nearly doubled in the last year. It won't always be like this or maybe for very long so tread carefully.

Yes, this is the right take. But, the conclusion I would come to is that now is precisely the best time to go gangbusters on options, because it's a bull market.

Leverage is your friend, until it isn't. Right now, it certainly is.

[fatlittlepig]

My recent experience: play account has more than tripled and is approaching 400% in a fairly short time period. Several problems with options in my opinion, it really is in a way just gambling because when you buy a stock you have the luxury of holding and over time it will usually go up. With options it’s much more of a crap shoot since in the short term you don’t know whether it’s time for it to go up or down. Second of all options are very seductive because of the huge gains, it is extremely tempting over leverage and buy more and more contracts. After buying calls, buying stock seems so boring and the gains so small. Selling options I’m sure can be lucrative but I think it can be problematic from a risk standpoint. Finally you really have to have a detached mindset from money and losses. The poster who stated he made more money with options than his salary, I think that is pretty amazing because you would really have to be unemotional dealing with that size options portfolio with the volatility and the amounts on the line.

[CordMcNally]

I have been an buy-and-hold index investor all along and have not even bothered having a play-money account. I can't put my finger on it but for some reason, options trading seems interesting to me. I am not a risk-taker by nature and am not drawn to it because of the lottery like benefits.

I'll put my finger on it, figuratively speaking. It's FOMO. You're seeing all these people post about doing this stuff and making money. Your grocery bagger is probably giving you stock tips. You're probably hearing about it in the doc lounge from those who probably can't even balance their own checkbook and are still working well into their 60s because they have to. It's easier to make money when the entire market has nearly doubled in the last year. It won't always be like this or maybe for very long so tread carefully.

[DocFi]

Buying options is more of a thrill ride.

Selling options is less exciting but a lot more thinking/planning involved. Can still make decent money doing so and it’s more steady. But if done wrong can still lose a lot of money too.

Always recommend plenty of reading/learning first. Lots of informative YouTube videos out there too. Then either do paper trading or start small to see if you like it or not before getting really into it.

Exactly my thoughts! I was looking into being more on the side of selling options too if and when I ever get there. My investment policy statement states that I need to wait 6 months before I exercise a new investment strategy so I am giving myself that much time to educate myself and try out simple strategies with paper trading before seeing if I can do the real thing!

[Nysoz]

Thanks for the advice and insight. I believe I will continue to explore a little more but it seems like something I may be inclined to do. It would be a deviation from my boglehead roots but I intend on looking into options more as an intellectual exercise than as a thrill-ride

Buying options is more of a thrill ride.

Selling options is less exciting but a lot more thinking/planning involved. Can still make decent money doing so and it’s more steady. But if done wrong can still lose a lot of money too.

Always recommend plenty of reading/learning first. Lots of informative YouTube videos out there too. Then either do paper trading or start small to see if you like it or not before getting really into it.

[Nysoz]

Shoot, wish I would of seen this on this day, well wish I wasnt traveling as I'd have traded the heck out of GME that day. Was putting together strangles on GME that had zero downside on the put side of the equation (actual risky side).

Anyways the above just references that the premium was so high that you could have sold those puts with near reckless abandon and not only would it be highly unlikely for them to hit, you might even get paid a hefty amount for it.

It was somewhat hilarious as it dropped several hundreds of dollars and the prices of puts didnt move at all. That is implied volatility, and why it becomes important.

Yeah I sold puts on gme, gme went down 60%, and I still made money lol.

[DocFi]

It took me the better part of a year to get the hang of what I needed to know. I started off slow and simple. Slowly made more trades and more involved iptions strategies.

It started off as a fun hobby as there’s a lot of tinkering that can potentially be involved. Now I’m making more money doing this than my w2 salary.

Since I’ve hit my fire number a lot sooner than I anticipated, going to try and go part time and keep selling options for fun/income.

Thanks for the advice and insight. I believe I will continue to explore a little more but it seems like something I may be inclined to do. It would be a deviation from my boglehead roots but I intend on looking into options more as an intellectual exercise than as a thrill-ride

[Zaphod]

Regarding selling the puts, seems like you would have to sell many many puts for it to be worth the trouble and then you would be partially exposing yourself to a very large liability in the scenario the stock goes to zero.

Shoot, wish I would of seen this on this day, well wish I wasnt traveling as I'd have traded the heck out of GME that day. Was putting together strangles on GME that had zero downside on the put side of the equation (actual risky side).

Anyways the above just references that the premium was so high that you could have sold those puts with near reckless abandon and not only would it be highly unlikely for them to hit, you might even get paid a hefty amount for it.

It was somewhat hilarious as it dropped several hundreds of dollars and the prices of puts didnt move at all. That is implied volatility, and why it becomes important.

[Nysoz]

It took me the better part of a year to get the hang of what I needed to know. I started off slow and simple. Slowly made more trades and more involved iptions strategies.

It started off as a fun hobby as there’s a lot of tinkering that can potentially be involved. Now I’m making more money doing this than my w2 salary.

Since I’ve hit my fire number a lot sooner than I anticipated, going to try and go part time and keep selling options for fun/income.

[DocFi]

I have been an buy-and-hold index investor all along and have not even bothered having a play-money account. I can't put my finger on it but for some reason, options trading seems interesting to me. I am not a risk-taker by nature and am not drawn to it because of the lottery like benefits. However it seems to me that if done well and in a disciplined enough manner, Options can be a viable income stream. I imagine though that doing so would require several years of practice.

For those of you who trade options - do you do this as a side gig or just a fun hobby?

[Nysoz]

That’s very true. No such thing as a free lunch