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.
> 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.