To the average ignorant trader, sure. Otherwise this statement doesn't hold water. You should really do some research before making such silly uninformed claims.
Anyone who purchases options is indeed gambling. I mean, you're not getting anything in return for your money like when you purchase shares to build equity. When you buy an option, if you're wrong you literally lose all your money.
Now, I know you're gonna say you can lose all your money when you buy shares, but no -- that very rarely, if ever, happens. If you buy a dividend stock than it's even better as a long-term investment.
The only parties options trading isn't "literally gambling" for are the ones selling the options like market makers (Citadel). They know people like to gamble and they're happy to take the other side of the trade because it's free money when they hedge properly (sounds like a casino, doesn't it?).
Let's say I have 1000 shares of MSFT that I can't sell for 1 year, but I'm worried the stock might drop. I can buy puts to hedge against the price dropping, and the strike price determines how much loss I'm willing to accept, and the corresponding premium I need to pay. If the price in 1 year increased, I'm only out the premium for the 10 puts I bought, otherwise I can exercise them.
If you are purchasing “covered” options, it is absolutely akin to paying an insurance premium to limit the impact of short-term price swings, that are out of your control.
Just like you pay health insurance premiums to mitigate against costlier health risks.
You own 1 XYZ at an average price of $200.00. It is trading for $300.00.
You purchase an option to sell 1 XYZ for $300.00, which costs you $10.00, and expires in 3 months.
You just paid $10 to guarantee a minimum profit of $90.00 in 3 months, regardless of whether the price swings down.
There isn’t any morally harmful transaction occurring here, IMO.
It’s actually less risky than owning a stock for 3 months.
Is this transaction a reprehensible one, for you?
To be clear, we’re not trying to say that all options are created equal. Naked options (where you have no position) are in fact straight up gambling, at least insofar as I’ve tried to reasoned about them.
No you didn't address it all. It's also not a strawman because buying options is literally a form of insurance...
Have you ever priced a derivative? What about the estimation of future/realized risk using implied volatility doesn't seem "rooted in statistical analysis" to you?
>The only parties options trading isn't "literally gambling" for are the ones selling the options like market makers (Citadel). They know people like to gamble and they're happy to take the other side of the trade because it's free money when they hedge properly (sounds like a casino, doesn't it?).
Anyone can sell options, not just institutions. And it's still gambling, just with better odds. You can still lose all of your money on the selling side. Naked options even come with the risk of losing more than all of your money. The whole thing is just one big casino with everyone betting against each other to see who's right.
> Please explain to me how I can lose money by writing a covered call option.
When you to sell the underlying to cover. It's right there in the name. Of course you lose money, it's just that your downside risk is capped.
> Us plebs aren't allowed to write naked options, that privilege only belongs to institutional actors.
Yeah because you'll probably lose all your money. Would you rather be allowed to do something incredibly dangerous and then get met with a dispassionate, "Well, almost everyone fails at this but you tried anyway, should have known better! Thanks for playing."?
Writing any amount of uncovered calls where the present stock price is at least higher than the teens generally exposes you to more risk than the average American can absorb with their entire net worth.
That being said, if you really want to, there are places that will let you do it using margin if you guarantee you know what you're doing. Bad idea though.
I would highly suggest researching options trading, as you appear to be completely confused and/or misinformed about even the most fundamental aspects of options.
If you have a question about options, you can contact the Options Industry Council at 1-888-OPTIONS (1-888-678-4667) or visit its Getting Started web page. On the OIC website, you can also read a number of publications, including the "Characteristics and Risks of Standardized Options" booklet.
Now, I know you're gonna say you can lose all your money when you buy shares, but no -- that very rarely, if ever, happens. If you buy a dividend stock than it's even better as a long-term investment.
The only parties options trading isn't "literally gambling" for are the ones selling the options like market makers (Citadel). They know people like to gamble and they're happy to take the other side of the trade because it's free money when they hedge properly (sounds like a casino, doesn't it?).
Anyone who buys options is literally gambling.