Options trading and Gambling
The recent global market crisis caused a lot of options traders to lose their fortune. Increasingly, there are people who are referring to options trading superslotv2 or derivatives trading in particular as playing. This is probably due to the several choices traders who had their positions go down to zero, taking their whole account with them.
Did the stock investors do much better?
Many pensions and individuals had big positions on GM before the 08 crisis initiated and fully mean to hold it as “investment” rather than questions. But look at where GM is now… barely a dollar. Didn’t those “investors” lose their shirt as well? Shouldn’t options trading or investing in stocks be playing as well?
So what is playing?
In essence, putting money into something hoping that it will do well when you can do nothing about how the price movement of these thing moves is playing. Depending on an uncertain future outcome in order to make a profit or loss is playing! That includes stock “investment”, options trading, futures trading, warrants etc. How different are those from horse betters who “analyze” the performance of horses and then place their table bets waiting for an outcome?
Accepting the fact that bets on an uncertain future outcome with money exactly in danger is PLAYING is the beginning of trading and investing.
How did high pole professional poker players make a profession and a living out of a “Gambling” game? The real secret is risk management. Risk management is what takes options trading out of the realm of playing into the realm of investing.
The wonder of options trading is that risk can be hedged and position can be sized to any risk management needs. To take the simplest example, don’t buy more call options or put options than the amount of money you are willing to lose! See? Options traders who cannot accept the fact that trying to predict future outcome is playing, who like to think in terms of “sure win”, will put all of their money into a single position and lose their shirt. And then cry about options trading being playing. Yes, options trading IS playing in the sense that future outcome cannot be believed! It is proper risk management that takes options trading out of the realm of playing and into the realm of investing and trading.
In fact, with proper risk management, options trading can be much less of a gamble than buying stocks itself!
This is because you can structure options strategies that profit in more than just one direction whereas if you buy stocks, you merely make money when the stock comes up! With the possibility of benefiting in more than one direction, likelihood of winning is greatly enhanced, risk reduces and the trade becomes more of an investment than the usual gamble! See?
For example, a Call Relation Spread allows me to profit when the stock falls, stay flat or up to and including pre-determined price! In all 3 directions! Now, how is that playing now that the actual future outcome is no longer that important to earning? With a Call Relation Spread, I won’t have to be exactly correct on where the stock is going, because it is capricious in the first place, and still make money! See?
Also, due to leverage granted by call and put options, I could control the profit on more stocks using lesser money! By using only money I am happy to lose in one trade, I could reduce risk and yet control the profit on stocks which will take a lot more money to regulate!
Now, options trading is not magic. Options trading can be risky without a comprehensive understanding of how it works and how each options strategies work but once you reach that level of competence, options trading becomes more trading and investing than playing with the proper risk management strategies in place. The purpose I am trying to get across to you in this article is this: Any situation that depends on an uncertain future outcome is playing and that includes options trading and stock investing. However, with proper risk management and hedging strategies, options trading can become less dependent on the accuracy for the future outcome than stock investing, thereby becoming more of an investment than gamble.