Back
BlogsARE OPTIONS JUST GAMBLING

ECB's Lane says not seeing wage-price spiral, "it's more like an inverse spiral"; wages inevitability need to catch up and that will slow disinflationMORNING MINUTE JUNE 26th

Darren Krett

Friday 23 June 2023

Share on:

MORNING MINUTE JUNE 26th facebookMORNING MINUTE JUNE 26th twitterMORNING MINUTE JUNE 26th linkedin

Post views: 4048

ARE OPTIONS JUST GAMBLING

Categories

Trends

Well it can be….Ask yourself, are you trading options for the buzz? Do you have some kind on analytics system? Are you trading because your buddies are doing it?

For those of you punting around in single day expiration options, it most definitely is gambling. Short term signals do work and you can take advantage of these, but the level of risk management is limited given the time frame involved.

Now I also see a lot of you just swinging away for the fences and that is fine, but it isn’t the way options are supposed to be used. Now the similarity to gambling doesn’t stop there. Market Makers (the guys that set your option prices), will for the most part, try to stay neutral. The math behind this is not dissimilar to being a bookmaker. A bookie will be able to lock in a mathematical profit on a horse race without risk, if he has equally weighted bets on all the horses, regardless of the odds. I used to run a World Cup book on the trading floor, where there was enough liquidity to be able to lock in a profit or even skew my book in a certain direction, where, for example, if I believed that England would likely lose on penalties at some stage of the competition, I could make it so that if England did win in I would break-even but if I were correct my returns would increase if anyone else won it. Hedging an option book is not too dissimilar. However you guys are not going to have a massive book of positions, you should be looking for an advantage over the” house” and this CAN be done. There are no guarantees in any type of trading, but the idea is to give yourself as much of a chance as possible. Your target is to WIN AND MAKE MONEY AND NOT TO POST LOSS PORN ON REDDIT!

UNUSUAL WHALES?

Most, if not all of the option specialist websites have put emphasis on large trades that go through. Now while this is an interesting way to gauge overall directional views, this does not mean that if you see a big call buyer that you should go steaming and and buying calls too. In fact probably the opposite (hedged or as part of a different bullish strategy). This is because you are LATE TO THE PARTY and the market-maker will already be skewing his pricing so that you end up paying more for something than you should, which in turn, will reduce your returns and chance of actually making money.

SO WHY DO THESE SITES PUT EMPHASIS ON TRADES THAT HAVE GONE THROUGH?

Because its easy. It is easy to scrape that data from the exchange, what is infinitely harder is to be able to assess what trade is the right one to put on.

SO WHAT IS THE DIFFERENCE?

Probability and Risk Assessment:

In gambling, outcomes are generally based on pure chance, such as rolling dice or spinning a roulette wheel. The odds are typically set in favor of the house, making it difficult to predict or control the outcome. Options trading involves analyzing market trends, evaluating underlying assets, and assessing various factors to make informed decisions. Traders can use strategies like technical analysis, fundamental analysis, and risk management techniques to increase their probability of success.

Time Horizon:

Gambling outcomes are often resolved quickly, with results determined within minutes or hours. In contrast, options trading can involve a wide range of time horizons. Personally, I do not like to enter trades that have an expiration under a week from entry and generally most of my trading is a lot longer than that.

Information and Analysis:

Successful options trading typically requires a comprehensive understanding of the underlying assets, market conditions, and other relevant factors. Traders often spend significant time analyzing charts, financial reports, news, and other data to make informed decisions. While chance plays a role in both gambling and trading, options traders have the ability to research and evaluate information that can potentially increase their chances of success.

Risk Management:

Skilled options traders employ various risk management strategies to minimize potential losses and protect their capital. Techniques such as stop-loss orders, position sizing, and diversification are commonly used to manage risk. In gambling, the element of risk management is generally limited to setting spending limits or betting within one's means.

60% of the time, it works every time!

It's important to note that options trading carries risks and potentially unlimited risk..you can lose your house, quite literally. THIS DOESN’T MEAN THAT YOU WILL…there are many options strategies that you can employ and trading requires 1 real thing. DICIPLINE! If 60% of your trades make money and you lose on the rest, as long as you have followed the “rules of trading” as far as cutting your losses and running your profits, you WILL BE SUCCESSFUL . Yes, options can be thought of as a form of gambling, but there is an awful lot of difference between being a punter and being a bookie.

Be the bookie.

Related reads

Trends
The Truth About Options Trading-image

Darren Krett

Thursday 4 May 2023

The Truth About Options Trading

Options trading is often perceived as a risky and complex investment strategy. However, the truth is that options trading is no riskier than
The Truth About Options Trading

0


Comments (0)

Learning
Option Strategies
PUT OPTIONS-image

Darren Krett

Wednesday 7 June 2023

PUT OPTIONS

The simple textbook definition is a buyer of a Put option has the right (but not the obligation) to sell a specified quantity of a security
PUT OPTIONS

0


Comments (0)

Get started with Leviathan FM today

7 day free trialContact us
See our pricing

© 2015 - 2024 Leviathan Financial Management LLC. All Rights Reserved.

Legal Disclaimer: The information provided in the Leviathan website is for informational purposes only. It should not be considered legal or financial advice. You should consult with a financial advisor professional to determine what may be best for your individual needs. Leviathan Financial Management does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence. To the maximum extent permitted by law, Leviathan Financial Management disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses. Content contained on or made available through the website is not intended to and does not constitute legal advice or investment advice. Your use of the information on the website or materials linked from the Web is at your own risk.