This comment about having made millions leveraging on SPY and QQQ over the course of 100+ trades doesn't check out, given that a few days back, this commenter created this throwaway account to complain about finding it hard to quit their job at Amazon because the pay is so good.
https://news.ycombinator.com/item?id=25878201
IOW, they're lying for Internet points.
The change they want is for more people to play the wsb game. And for more people to believe that the game has many winners. The mistake is that their message was untruthful, it was an exaggerated attempt to create hype.
Or. It was a user lying to make them get attention on the internet and feel better for a short amount of time, but I like my first idea as it's directly called out in the subject we are discussing. Thanks for unveiling it!
edits - I think its also like if you say something is important enough, it becomes important. So if wall street are still debating if wsb is or isnt actually relevant it means they already are. So the message is twofold. Firstly it's a "play the game, we need the hype" but more like "these comments have importance in itself because we say so". It's similar to meme magic - to say that 4chan memed Trump into office is utterly ridiculous, in reality they didn't. But enough people believed they might have and looked into it and thought maybe they did, that the effect of 4chan became important. A magic trick is about what you think you saw after you leave the theatre.
edit2 - and even my comment reinforces the effectiveness of the strategy just by commenting on it!
Edit: Saw he worked at FAANG and is 30, so there's a pretty good chance he also started with investing million(s).
I'm paying attention now, but I'm worried I missed the boat already.
But don't pretend that that means everyone can do it, because patently they can't: you won your bets, a bunch of other people lost theirs. No value that wouldn't otherwise have been created got made, you just shifted the balance of how the rewards are distributed in your favor, and away from someone else.
As a system for distributing the benefits of economic production, allocating it to the winners of a complex iterated social game seems suboptimal. Like if we used 'Among Us' tournaments to distribute food.
But hey, glad it's working out for you.
In the long run, statistical iterations (that you have modeled/researched correctly) will give you positive returns with a very high confidence.
Situations like in this post are obviously not that. I have a trading strategy that I execute over hundreds of trades per year based upon financial modeling and financial statement analysis. There's a little luck involved, but over many trades, the luck aspect cancels itself out.
It's like rolling the dice. If you bet on getting a certain number, and roll once, it's luck. If you bet on averaging a certain number and roll 1000 times, there's virtually no luck at all.
It does NOT say that any individual investment decision that produces a reward for the investor must necessarily have improved the allocation of capital to maximize value.
Options trading in particular has only indirect market-making effects on how the primary capital allocation market works. The existence of the options market helps the primary market discover efficient allocations (the theory goes). Participating in the options market has a side effect of increasing efficiency, but the way the options market allocates rewards is less connected to the information value that your trades contributed to the market.
There’s an investment product some governments sell called a ‘lottery bond’. People buy the bond, then periodically, rather than every bond being redeemed for a small premium over its value, one randomly selected bond is redeemed for a much higher value.
As a thanks for participating in that bond market and letting the government use your capital, instead of a predictable investment return the government offers a chance of a life changing lottery win.
This isn’t better or worse than a traditional bond offering, it just offers a different strategy for allocating the rewards for investing some capital in that government.
The person who wins a lottery bond didn’t do anything better or different than a lottery bond loser - both of them contributed the same value to the market in terms of increasing capital allocation efficiency. But the rewards were distributed unevenly - which is by design and both of them knew that going in.
Options traders take the same deal. Playing the game has the chance of winning big; participating in the game has a side effect of producing value. And the way the rewards are allocated for playing... don’t matter too much.
Of course they matter. If they didn't matter, then participants wouldn't participate. ...and if they didn't participate then the market would have less liquidity. ...and higher liquidity is ALWAYS a good thing.
The health of a market can be characterized by the persistence of liquidity.
If the options traders decide to armwrestle to decide which of them gets to keep the $1m, the market doesn’t care.
...but there is an ecosystem of traders intertwined and many of them are primary market participants, so the market does care, because the "gamblers" are providing liquidity to the legitimate participants.
The stock market is detached from reality. It creates its own universe. The efficiency we're talking about here is self-referential - it's not efficiency in producing object-level value, it's efficiency in enriching participants of the stock market. Which depends as much on the company itself as it depends on the hype the funds and the shareholders can make around it.
That WSB can tank or revive companies just for teh lulz only shows to demonstrate how the stock market is an universe of its own.
Skepticism is healthy, but in this case, it's closer to ignorance.
The ability for corporations to go to the open market to secure capital is contingent upon a high liquidity of buyers and sellers present and actively participating.
The market doesn't exist without "primary" buyers and seller acting on behalf of their company to issue new stock (raising capital) or buying back stocks (returning capital (or via dividends)). Between these two types of transactions, there are participants that are constantly estimating the value of these share. If the price of the share deviates too far from what the company thinks it's worth, it will actually trigger one of those two events.
Options are just another more efficient mechanism to make these estimations on a specific timeframe. They allow traders to have a very specific thesis on what is mispriced and place a trade on it.
Without these trades, the market would lack liquidity, and companies would see an increase in their cost of new capital - which is bad for everyone because it means companies wouldn't invest in growth, equipment purchases, new jobs, etc...
Once you have served every customer the only way to make more money is to take customers away from other competitors, or grow the market as a whole. Traders do not influence the size of the market, they only increase efficiency, so the expectation is that you run into diminishing returns stays.
There is more than enough liquidity in the markets. Any more liquidity is not providing any value.
>Without these trades, the market would lack liquidity, and companies would see an increase in their cost of new capital - which is bad for everyone because it means companies wouldn't invest in growth, equipment purchases, new jobs, etc...
The Fed is already taking care of that. The bigger problem is that there is no reason to invest the Fed money and grow the market.
However it takes capital to do this. It's not just about liquidity, investors basically influence the cost of capital for each company which has a big impact on how many customers each company can serve.
Derivatives are critical even to primary market participants. Farmers looking to secure their pay for future crop deliveries. Banks looking to remove interest rate risk on mortgages they've issued. Shipping companies looking to remove the risk of fuel fluctuations on their future transport costs.
Fluctuations of cost inputs and uncertainty of future revenues can be a company death sentence as they cause cash flow shocks. They have real value to the economy.
Often, they are only possible if there is a liquid market of people willing to take the other side of these transactions. Narrowing the spread between buy/sell prices on these derivative contracts allows more companies to be able to afford them, and that makes many low margin businesses able to exist at all.
Despite all the hate on social media, these markets have material value. ...even if there are these anomalies like this Gamestop incident.
I imagine the SEC is going to shut down that Reddit sub because these types if activities actually destroy liquidity but discouraging short sellers.
Regulation plays an important role in keeping markets running smoothly.
Proponents would say that it is efficienct in funding ideas that are more likely to succeed, with the partecipants in the stock market taking a commission for the transactions.
If inflation is low you can do the dumbest things imaginable and as long as you make your money back you can keep doing the dumb thing over and over again.
If there was decent inflation you would have to have at least some expectation of a future gain because inflation and by extension the increased interest rates would cause your net 0 investments to be a net loss.
the aggregate success thrown off by the stock market is a measure of the usefulness of the stock market.
participating in that is what enables to stock market to provide its usefulness.
so, yes, success on the stock market is a function of usefulness in the real world.
Stretching the brake analogy it would be similar to noting that just because you are pressing more your brake pedal it does not mean that your car is slowing down faster, sometimes you need an ABS
wall st money was lost on gme, not made. Market makers got killed trying to hedge those deltas, over and over again (it is impossible to statically hedge an option you have sold with a long/short position in the underlying tho in some cases like far ITM options, you can pretend like you can because the options delta is 1)
This is pretty different from YCombinator's startup investment. No one has to lose for YC to win. The money ultimately comes from customers of YC-funded startups, who are in theory engaging in positive-sum trade (getting more in value than the money they paid for it). On average, people are earning lots of money investing in startups.
To be clear, options trading does have value in terms of letting people buy insurance and providing a price signal in terms of how many people believe prices will go up or down, but this is comparatively marginal and doesn't affect the options traders themselves.
Honestly. Even if I lose everything (I am up >200%) in January alone, I will be glad to see those greedy jackasses bleed.
Step 2 - Do not buy leveraged options at the wrong time [0]
[0] https://knowyourmeme.com/memes/be-attractive-dont-be-unattra...
But in all seriousness, for the past 12 years, there has been no fundamentals. Why? Because the Fed juiced the market with Quantitative Easing. Thereby flooding the market with infinite money.
Literally, all you had to do was to buy and hold.
People are willing to spend money on their memes like they are for their genes
When they blow up, they talk to their media contacts and lay the blame on retail day traders ganging up on them and start a new fund.
I invested in NVidia after recognizing GPU shortages due to ML continuing hype. I switched to AMD after recognizing their Zen CPUs are slowly beating Intel. I switched to TSMC after realizing their accomplishments are significant part of M1 and Ryzen advantages.
My stock portfolio's growth is over +50% yoy over last five years on average (geomean).
The way I explain this to myself is that trading firms focus on economic fundamentals, which can not show upper hand in a specific technology. They are trying to recognize the later, but it requires understanding tech news articles, and best NLP AI methods are not there yet, whereas our brains can handle that task, especially if it is withing our own expertise.
If that theory is right, you can beat the market, but you have to be real expert in the area you are trying to trade in, and probably a few linked areas too.
But I think from a broader perspective, I’ve made huge leveraged bets on VTSAX/SPY/IWM on stimulus news. Very obvious that financial assets will inflate with each extra fed move.
https://news.ycombinator.com/item?id=25878201
IOW, they're lying for Internet points.
People are adult, if a simple comment makes you YOLO your life savings on options you probably had a lot of issues to begin with.
Par for the course, really. Wait better because their main source of income might not be related to a gamble
Edit:
The money was made over a 100 trades
Option prices move every day.
There do exist, in fact, some people who are very skilled at making money trading options. Some people do it for a living with rich people's money, and many of them have the same skillset/education as the general HN audience.
If this guy actually made millions over the course of dozens of trades, it makes more sense to let him talk than to downvote him and tell him that he's just an aberration of probability lol. Like, what do you gain by that? If he's lying, humor him and enjoy the conversation. If he's telling the truth, pick his brain.
My view is that most people don't talk publicly about windfalls, so if someone's willing to do it on a throwaway it's way more useful IMO to tease information out of him than to marginalize his comments. That's also the best way to determine whether or not he's lying.
If he's consistently lucky, then he's good.
Probabilistic tails are narrow but they do exist. By that, I mean you shouldn't assume that something isn't worth discussing just because it is improbable. That approach stifles the free exchange of thoughts and ideas, and neglects the reality that some people are in fact talented at things that most people can't do.
PS I didn't say you specifically downvoted the guy, but we as a collective have downvoted several of his comments on this article, and you as an individual are trivializing his (claimed) experience as luck.
Personal note: I really don't know why you would bring attention to yourself over this
HN, let's not lose our perspective. There are millions of "essential" workers, like daycare, teachers, elderly caregivers, laborers, etc. that didn't get a lick of compensation for their risky labor in COVID times. Many of these people had NO choice to stop working and NO choice to work from home. These are truly essential individuals who work for minimum wage or less, while truly making "peasant money" here.
They're not investors. Their money doesn't help the company.
[0] https://www.sec.gov/Archives/edgar/data/1326380/000119312520...
It's not clear what view the SEC would take if they fast tracked an ATM offering now. Hertz were told to knock it off, but they were literally trading in bankruptcy. There's a pretty good argument to be made that issuing more shares is if anything the responsible thing to do to in response to increased demand, since it would help to correct the anomalous price rally.