Retail investors on average underperform the market, yes. Retail investors who only invest in index funds tie with the market (pretty much by definition) and those who think they can beat it drag the average down. You're generalizing over a group that has no homogeneity.
> You and retail investors as a class have been scared into thinking that it's "riskier" to spend $300 on a call spread in Tesla than it is to go out and buy 100 shares of TSLA for around $25,000.
Its like you're not reading any of the advice here. Its just as stupid to invest in an individual stock as to buy a call spread. If you're doing either, the bet you're making is "I know more about this subject than tens of thousands of professionals who have studied it for 100 hours per week for the last decade". Out of context, that's an obviously stupid bet except in very very rare circumstances†. So what about it being the stock market suddenly turns it around?
Index funds, on the other hand, definitionally track the market. Something which the professionals you think you can beat can't even do on average. This is the strategy that is being pushed, not buying a huge number of shares of a single risky company.
†Those circumstances are, in stock trading, largely illegal to act on.
Ok, forget TSLA: Why is it less risky to buy 100 shares of SPY (at around the same $20k as TSLA) vs a $300 call spread on SPY? How can it POSSIBLY be riskier to spend $300 vs $20,000?
I'm sorry man, you don't get it, but you're sure that you do, and you're so sure that you can't be wrong that you dismiss things you clearly don't really understand. You disagree that retail investors should use options? Make an argument aside from "it doesn't work" because I have years of returns -- and you can watch HUNDREDS of hours of studies on TastyTrade and others -- that makes a far better case than your abject dismissal.
I write about option strategies because I'm certain that it's good for individual investors to see serious, experienced people talk about it. I know, I know, you're certain I can't possibly be right (for some reason) and I guess you think I'm just making it all up out of some 4chan like desire to ruin people. Whatever, man. The only traffic to this page now is you and me and other existing commenters.
What's crazy is, TastyTrade, it's a startup! They took VC money and have a dozen data scientists producing meaningful research -- the same stuff hedge funds and prop firms do -- and they release it all publicly. They have a market theory, and they've built fantastic free trading software (first Think Or Swim, now Dough.com) to give investors tools to implement their strategies. These are the good guys, empowering people to not get screwed by some shitty store front financial advisor. They had a 1/2 billion dollar exit with ThinkOrSwim and they give everything TastyTrade does away for free. There's an app you can subscribe to if you want to, but there's no obligation, it's real altruism.
Now, feel free to have the last word. If you're up to it, I'd love your take on the question I asked somebody else:
Wouldn't you agree that it would be a bad idea for a retail investor to invest in OTM options hoping the stock price will move in their direction? It's an awful strategy, with a low probability of success. Almost certainly those options you bought will expire worthless. So why on earth are you advocating so strongly against taking the OTHER SIDE of that trade? Here's a good answer: If you just do not have any time to invest, if you can't put in 15 mins each morning, then fine. But you must feel pretty strongly, so please, explain why you wouldn't want somebody to make that trade.
My answer to that question is pretty much the same as my answer to anything else about investing in the stock market - don't pretend you know more than the professionals; just use index funds. My problem wasn't with TSLA.
> Why is it less risky to buy 100 shares of SPY (at around the same $20k as TSLA) vs a $300 call spread on SPY? How can it POSSIBLY be riskier to spend $300 vs $20,000?
You're fighting a strawman here. I'm not saying which of those is riskier; I'm saying they're both stupid things to be doing.
My question to you is: why do you think you can beat professionals despite spending 1/100 of the time learning about it? And why do you think this is advantage is scalable? You're playing a zero-sum game coming from a huge disadvantage.
Think about it this way: in a zero-sum game, you winning means someone else is losing. Who are you beating, and why are you doing better than them?
My answer is that the market is largely unpredictable and those who win have just been lucky so far.
I gave you the last word and I'll stand by that, but I think you misunderstood me and I'd like to clarify this point:
The SPY is an index fund. Of the S&P500. So no, you're not saying "they're both stupid". You're saying "buy an index fund" and I'm saying, there are more sophisticated ways of doing exactly what you're advocating.
And I'll answer your questions:
1. I don't have to "beat" professionals. When you sell options, you're selling at the Bid price. The market makers are still making their few-pennies cut, because that's how their business works.
2. Option pricing is transparent. One of the multiplicands in options pricing formulas is Implied Volatility. This is a forward looking, crowdsourced guess of where the market thinks volatility is headed. It's not backward looking, that's Historical Volatility. The thing about IV is that empirically, it over-estimates. Since the CBOE first invented the Call option 20 or 30 years ago, actual volatility has been lower than the Implied Volatility predicted. And that's the edge dufer, it's an arbitrage opportunity between IV and actual volatility. There is of course no guarantee it will always be there, but it always has been, and that counts for something.
Another way to look at this is simple: People buy options for a variety of reasons. Speculation and Hedging primarily. The options market has to build-in an edge for option sellers, otherwise nobody would sell them.
Alright, I'm sorry if ever my emotions ran a little high. I love HN but the tendency to shout-down what you don't agree with sickens me a little and I have a hard time just yielding to it.
> You and retail investors as a class have been scared into thinking that it's "riskier" to spend $300 on a call spread in Tesla than it is to go out and buy 100 shares of TSLA for around $25,000.
Its like you're not reading any of the advice here. Its just as stupid to invest in an individual stock as to buy a call spread. If you're doing either, the bet you're making is "I know more about this subject than tens of thousands of professionals who have studied it for 100 hours per week for the last decade". Out of context, that's an obviously stupid bet except in very very rare circumstances†. So what about it being the stock market suddenly turns it around?
Index funds, on the other hand, definitionally track the market. Something which the professionals you think you can beat can't even do on average. This is the strategy that is being pushed, not buying a huge number of shares of a single risky company.
†Those circumstances are, in stock trading, largely illegal to act on.