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HI BFC, first post here, and it's a bit of a doozy. I've never had much actual interest in investing, both because I never had enough money to seriously consider it and also because it looks, from an outside perspective, like gambling for rich people. I've been poor all my life, and will likely continue being poor for a ways yet. I quit my job in March when the coronavirus started blowing up because I was scared and because I had a small cash pile saved up to live on, but that has dwindled to fairly low levels now and soon I'll have no choice but to start looking for a job (lol in this economy, yes, I know). I'm telling you this so you can understand what kind of mindset I'm in even considering this when normally I would just laugh at the prospect. I don't want to go back to work as things are in the US now, but soon I will have no choice other than to starve and die homeless. So I was at the store yesterday on my weekly grocery run, and I overheard this dude in my aisle talking on his phone. And when I say talk, I mean he was doing that thing where you're sort of urgently loudly whispering and it's not really whispering at all. I could tell from his side of the conversation he was some kind of day trader, and he was practically begging whoever was on the phone to do the topic of this thread. Which is, basically, buying SPY put options for pennies that are going to expire Friday or some other date this week and reselling them a little later when they blow up in value when the market crashes again like it did in March with the states shutting down. This dude was adamant that the market is going to crash this week. Like, he was certain that it is definitely going to happen, and he was urging his friend to do this strategy, just with 100 dollars instead of my measly 20 dollars. Like I said before, I haven't had any interest in investing, so a lot of the terminology and advice he was using went over my head, but I got the basic gist, of buying put options (I had to Google what these were, as I had to do for everything else he was saying that I could remember) for extremely cheap (he specifically said pennies), and reselling them when they go up in price for a huge profit, which I gather will only happen if the market, does, indeed, crash again this week. I like to believe that, even if I'm not smart, I'm not stupid, so I went home and I tried to remember a lot of what he was saying and did a few hours of research. And I still don't quite get all of it, so I'm coming to you folks to ask for help. Let me see if I get this. Essentially, options are rights, or contracts, to buy or sell 100 shares of stocks. A call is the ability to buy 100 shares of stock, but you don't need to, and a put is the ability to sell 100 shares of stock, but again, you don't need to. And you can sell puts and calls, and buy puts and calls. I get this. From what I've gathered, you buy puts if you think the market is going to go down, in the hopes of reselling them when the value on the put goes up. This sounds basically like stock trading from what I remember about stocks, you buy low and sell high. From all the news we've been hearing, this seems likely to happen soon as coronavirus cases soar and states might shut down again. But there's something I'm worried about. in my research, I learned you can do basically 1 of 4 things with options. You can buy, you can sell, you can let them expire, or you can exercise them, meaning you can sell the 100 shares of stock that put represents. What I'm worried about is the last two. From what I read, if I sell puts, I'm on the hook for the stocks they represent if the buyer lets them expire or chooses to exercise them, and I'm only clear if the buyer sells those puts. Meaning I would have to actually buy the stocks to sell, meaning I would be putting way more money into this than I want to, money that I can't afford to lose. Is this correct? If the puts bought for pennies blows up in price to over a dollar or some poo poo, then it looks like I can get potentially thousands of dollars from a 20 dollar investment, which would allow me to continue hiding from the world a little longer and hoping this crisis goes away sooner rather than later. After doing my research, this sounds like a huge scam to me. Which, to be fair, the entirety of investing seems like a scam to me. If this is real, turning a few bucks into thousands of dollars, loving everybody would be doing it. So there has to be something I'm not getting. So what do I do? If it were only 20 dollars I'm losing, I would gamble on it. I would open a brokerage account with my bank, I would buy 20 dollars worth of puts, and either resell them if they go up in value, or don't and lose out on 20 dollars when they expire. But I don't know if that's what's actually going to happen. Again, I don't mind losing 20 dollars just because I got convinced by some rando at a grocery store. But I do care if it's actually going to cost me hundreds of dollars. The other thing is that, even though poo poo looks bad, I know from reading the GBS economy thread that the market is practically divorced from reality and does whatever the gently caress it wants. And this will only be profitable if the markets go down and thus the value of the puts I buy for pennies goes up. I don't need a lot, I'm not looking to win big. Getting even just a few hundred dollars out of 20 would be a big win, and help me survive a little longer. Which I guess is why I'm even entertaining this idea, because I'm getting desperate. I need people to knock sense into me and explain why this is a bad idea before I jump into stuff I don't understand and something very bad happens.
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Jun 28, 2020 19:35
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| # ? May 5, 2024 11:25 |
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Please do not make financial decisions based on half of a conversation you overheard at the grocery store
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Jun 28, 2020 20:51
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You can go to the long term investing megathread where people will tell you how stupid you are to try to make money with options, or you can go to the day trading megathread where people will tell you how stupid you are to try to make money with options. This is complete desperation, like overhearing someone's Martingale strategy at Applebees and then going down to Vegas because you know you can beat roulette. You are just going to be throwing your money away. Best case scenario, you lose your $20. The worst case scenario is that you turn your $20 into $100 by getting lucky. The reason this is the worst case scenario is that you will think you know everything and then lose a lot more money when you get your next paycheck. It would be better to sell plasma, or go panhandle on the street, than to try to make money with $20 of put options. It would be better to go suck cocks on craigslist. Post your resume in the resume critique thread, go to https://www.reddit.com/r/povertyfinance/ for tips on getting on EBT and using food banks. Don't try to learn how to use sophisticated financial instruments as your first go at investing. When you're in a more stable position, go and read the OP of the long term investing thread, and start doing your homework to learn how actual investing works (hint: it's not gambling or speculation). After you've got a few hundred thousand dollars invested in retirement accounts, then you can start playing around with puts, if you really hate yourself.
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Jun 28, 2020 22:53
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edit: never mind. i did my best to explain why you shouldn't do this and still managed to make it sound kind of cool (i love gambling) so i deleted the post. please don't do this Spokes fucked around with this message at 06:27 on Jun 29, 2020 |
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Jun 29, 2020 06:17
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If you are inexperienced and financially desperate, day trading is a more certain path to ruin than casino gambling. The grocery store guy was trying to sound like a big shot, and you bought his act. Being able to beat the market in the short term comes down to having information that other people don't - either insider trading, or very sophisticated analytics. If he had that information, he wouldn't be blabbing about it in the grocery store. What you heard was the same thing as a guy telling his buddy "nah, you gotta put everything you got on the Jets to beat the spread, they're going to take it all the way this year." When you buy options, there are situations where you might be able to make thousands of dollars starting with $20. It's also possible to make millions of dollars in the lottery by buying a $1 ticket. In both cases, you're dealing with incredibly long odds, and what will actually happen is that you'll just lose all your money. When you sell options, you end up either walking away with the money (because the option turned out to be worthless) or on the hook for a potentially unlimited loss. Here's a famous video from a guy who expected to be in the first club, but ended up in the second, with a bunch of other people's money: https://www.youtube.com/watch?v=VNYNMM0hXXY (if you want a technical explanation of what happened instead of pure schadenfreude, here you go) Options have their place - they can work like an insurance policy, to make sure that if things don't go as planned, your losses are limited to a specific amount on a certain date. But, if you don't understand the fundamentals of both the underlying stock market, and the options market, you gonna get hosed chasing phantom returns. Even if you do understand everything that's going on, it's still incredibly risky. If you're wealthy and can afford to eat misjudgments and bad luck, it can turn out profitable. But, you're not wealthy. You're looking at gambling in a game you don't understand, using your food and rent money. One final note: when you do get back on your feet financially, don't let any of this keep you from longer-term investing for retirement. When your goal is to just match the market as the economy grows, instead of getting rich ASAP, you don't have to find some sucker to take the other side of a bad bet. Growing your money still isn't a sure thing, but owning a little slice of the means of production over the long term is a much more reliable option than trying to guess when, exactly, the market noise is going to swing the way you want it to.
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Jun 29, 2020 15:53
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I appreciate the replies. What I needed most was a splash of cold water to keep me level headed. I'm fortunate in a sense that I always, always look for a second opinion before making most decisions, otherwise I might just have done it.
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Jun 29, 2020 20:20
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Gologle posted:I like to believe that, even if I'm not smart, I'm not stupid,
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Jun 30, 2020 12:29
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Yeah luckily the forums saved you from making a terrible decision by listening to a guy buying beans at food lion. Everyone knows you get your stock tips at CVS and best tax advice outside Kohl's changing rooms.
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Jun 30, 2020 20:12
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Guys, I'm starting to think that the market might not crash this week like the grocery store dude said it would. what the gently caress, how could he possibly have been wrong?
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Jul 3, 2020 19:58
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moana posted:Guys, I'm starting to think that the market might not crash this week like the grocery store dude said it would. what the gently caress, how could he possibly have been wrong? gently caress
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Jul 3, 2020 20:07
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lucky thing I didn't know what I was doing and ended up buying calls instead of puts, whew, maybe I'll try more of this "investing" thing next week
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Jul 3, 2020 21:05
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I was getting a coffee at a local grocery store. The barista asked me if I knew what Forex was and - without waiting for an answer - proceeded to tell me how he's on his way to financial independence, all thanks to Forex trading, and that he knew a guy who gave trading advice directly to the Queen of England who was also big into Forex trading. He shared his business card (printed on a crappy home printer) in case I wanted trading advice. Moral of the story, don't take any financial advice from grocery store sources.
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Jul 4, 2020 21:27
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Space Gopher posted:It's also possible to make millions of dollars in the lottery by buying a $1 ticket. Lottery tickets cost $2 though.
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Aug 31, 2020 22:04
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Machai posted:Lottery tickets cost $2 though. Oh, let me update my risk/reward analysis to see if this makes it wise to buy. On one hand the risk increases but does the rise in cost decrease the number sold and thus increase my chances of winning?
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Sep 3, 2020 00:52
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Xenocides posted:Oh, let me update my risk/reward analysis to see if this makes it wise to buy. On one hand the risk increases but does the rise in cost decrease the number sold and thus increase my chances of winning? your chance of winning is the same, 1 in 240 million or something. your chances of splitting are slightly lower because fewer people buy tickets at $2 than $1 but not by enough to really matter and after taxes your EV is still super bad
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Sep 3, 2020 02:51
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