Quote:
Originally Posted by Patriam1066
[You must be logged in to view images. Log in or Register.]
Yeah I’ll never understand options
Nikola is a bad name, and it’s basically copyright infringement on the name “Tesla.” All around poor taste
|
as Gwaihir sort of gets at, viewed as independent bets, options are pretty much random noise. options make more sense when you view them as balancing tools, or side bets, that you use in conjunction with main bets. it's easiest to understand why they're random noise if you break down and interpret your bets. (obviously always crunch the numbers. the numbers are how we operationalize belief, but never forget the numbers are only as good as the information they represent.)
what am I betting on? what specific information supports my bet? can I know that? when I buy a value stock, I'm betting primarily on the future performance of executives, over time. when I buy a speculative stock with an eye to sell later, I'm betting on the future behavior of other traders, over time. "executives will pay more dividends/other traders will pay more, starting now." these are bets based on past and present information that's likely to be predictive over time, and hence profitable given disciplined investing. (anyone who incorrectly invokes "past behavior does not predict future performance" at this juncture will be summarily executed.)
if I bought options as a standalone bet, I'd be making a specific bet about one moment in time, in the future, while doing it in a manner which conflates information about company and market behavior. "this will be worth more or less than X, on this future date." what specific information supports my belief that Stock A going to be worth more or less than X dollars on exactly this date? do I have specific information the executives, or the market, will do something the days before? or even that they might? almost invariably, no. I have no information, nor could I. that makes no sense. this is a bet for rubes.
an option is a hedge, and a hedge supports a main bet. "I'll bet the market that NKLA will behave in this way over the next so-and-so-long, but just in case, since I'm not omniscient, I'll make a side bet with part of the market that it behaves this, this or this other way, to obtain a better overall profile." a good hedge is still informed by the same information as the main bet. it just expresses it differently. it's a bit like the difference between a point estimate and a confidence/credible interval, the interval goes around the point estimate. it doesn't make sense independently. options are like that too.