I'm going to explain my reasoning very quickly, then ask -- basically -- what's wrong with my reasoning?
For over a year now I have been spending A LOT of time (hours every day) reading, researching, and really just trying to find out the ways I want to invest and grow my money over the long-term -- what vehicles, what strategies, and more. This was also due to just me being interested (and I had a lot of fun learning).
However, after over a year now and I'd say about 40 to 80 hours of research a month, looking at it every which way I can...
The only conclusion I can come up with is that nobody can predict the price of any stock -- period.
It doesn't matter how good you think you are at fundamental analysis...or technical analysis...or analyzing news, trends, volume and price action -- nothing.
It will NOT change the fact that you just plain have a 50/50 coin-flip chance.
Then there's the fact that you'll only ever be benefiting on a SINGLE move in any underlying asset during this coin-flip.
So you can only make money if the stock goes UP or you can make money if it goes down if you're shorting.
Of course, then the old main-stay is "Put your money into an INDEX FUND!"
But I don't see how this is any less of a random chance than anything else.
For example, in this article in the New York Times (http://archive.nytimes.com/www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.html?ref=business) a fund manager named Ed Easterling created a chart that shows annualized returns based on thousands of possible combinations of market entry and exit on the S&P.
Accounting for dividends, inflation, taxes, and fees $10,000 invested at the end of 1961 would have shrunk to $6,600 by 1981 20 years later.
Whereas $10,000 from 1979 to 1999 would have grown to $48,000.
According to my own research, if you had started investing in early 1997 -- 12 years later you'd have NOTHING to show for it besides a very, very modest dividend.
So basically it's up to complete RANDOM CHANCE whether or not you will or will not make a return over a 1 or 2 decade period.
For any person with an average lifespan, that means it will take you a quarter or more of your life to find out if your investments are even paying off.
And you could lose 50%....60% several times over (as we saw with 50% retracement during the dot-com bust and a 57% retracement just about 4 years later in 2008).
And again, there's the fact that you would ONLY be making money if S&P 500 goes up more than it goes down over the course of 20...30...40 years or more (as if you can tell the future).
I don't trust that AT ALL.
**Yet, Options Selling Seems To Have None Of These Problems From What I Can Tell*\*
- It's a completely directionally neutral strategy. If you use a bear or bull credit spread, or just use an iron condor, you're not predicting the price movement. You're just trying to go far enough OTM so that the likelihood of the option expiring out of the money is very high. You're predicting absolutely nothing. You're selling chips to gamblers, essentially.
- It's 100% risk-defined (unless you're selling naked like a dumb-dumb).
- You benefit (at least) on 2 out of 3 possible price movements of the underlying, instantly putting you at a pure mathematical probability of 67% of winning any position (and that's not accounting for time).
- Roughly 80% of all options contracts expire worthless -- yet another statistic in your favor.
- Easy to set 1:1 risk/reward stops (or even make your strategies not lose ANY money, even if your trade backfires). So for example, I take out an Iron Condor on SPY Monday -- it expires Friday. I go far enough out that I am at an 85% chance on both legs of expiring OTM. I adjust the legs so that that I am receiving the same (if not the EXACT same) maximum profit on each leg (including commissions). So let's say the Bear Call side of my leg is $300 max profit and so is the Bull Put side. Then, I put a stop order on both legs to buy-back the spread at double the credit. If I received .15 credit, I set a stop to buy it back at .30 if the price reaches my strike. So I received .15...bought it back for .30...so I lost .15. BUT, the other leg expires out of the money. So now I have broken even except for the commissions it costed to close the trades. It's completely risk-neutral.
- Diverse! Let's say you DO want to own actual shares of stock, right? But the stock is trading at $30 and you want to buy it if it ever reaches $20. Why on Earth would you put a buy-stop at $20, when you can just sell a put at a $20 strike? And KEEP selling those puts and KEEP making premium until one day you get assigned, and now you own the shares of stock you wanted at the price you wanted and made money the whole time. THEN, if you wanted to sell shares of that stock at $35...why wouldn't you just start selling calls at that strike price? And collect premium until you get exercised at a profit?
All in all it seems that all conceivable statistics and odds are in your favor for selling Options more so than any other strategy using any other vehicle could possibly be. It is the ONLY strategy that allows you to essentially BE the "Casino."
It's the only strategy where you can benefit on 2 out of 3 price movements (honestly, it can go up, down, or sideways, as long as it doesn't go BEYOND a certain point).
It's the only strategy that allows you to make 5%..10%...20% consistently over the time span of a week, a couple of weeks, or just a couple of months.
It's the only strategy where you know the mathematical probability of your trade working in your favor BEFORE you take it.
It's the only strategy that works in any market environment (bear, bull, or neutral).
And it's the only strategy that requires no sentiment on price direction or analysis or prediction or news or anything. None of that factors in.
**So what am I missing here?*\*
Submitted January 25, 2019 at 02:52AM by AHoomanBeanz http://bit.ly/2WgY3lb
