DeepSummary
The podcast episode discusses the recent resurgence of Roaring Kitty and the phenomenon of retail investors trading options. It highlights that while stories like Roaring Kitty's success can be enticing, most retail investors are unlikely to replicate such outcomes and instead tend to lose money trading options on average.
The episode delves into various studies and data that show retail options trading is often driven by speculation, gambling, and entertainment motives rather than hedging. Retail investors incur significant losses due to factors like high trading costs, overreacting to stock market returns, and preferring complex, high-risk strategies they may not fully understand.
The hosts emphasize that building wealth is typically a long and boring process of saving and investing in a diversified, low-cost portfolio, rather than chasing big wins through trading. They also discuss how successful traders' outcomes can influence others to take on more risk, exacerbating the negative effects of retail options trading.
Key Episodes Takeaways
- Steady, patient investing is a better approach than chasing trading lottery jackpots.
- Most retail investors lose money trading options, often more than their equity trading losses.
- Retail options trading is largely driven by gambling, speculation and entertainment rather than sound investment strategies.
- Retail investors incur high trading costs when trading options due to wide bid-ask spreads.
- Retail investors are influenced by successful traders' outcomes, leading them to take on more risk.
- Building wealth is best done through saving, diversification and low-cost investing rather than seeking big trading wins.
- Retail investors often gravitate towards trading options surrounding high-profile events and announcements, leading to overpaying.
- Complex option strategies amplify losses for retail investors who may not fully understand the risks.
Top Episodes Quotes
- “Trading options has not been great for retail investors. Most retail investors take significant losses on their options, trades larger than the losses they take from equity trading.“ by Benjamin Felix
- “Chasing big wins with trading is more likely to destroy wealth than create it.“ by Benjamin Felix
- “One paper suggests that the motivations to trade options seem to largely be gambling, speculation and entertainment, which is also interesting.“ by Benjamin Felix
- “Retail investors in options markets are often overpaying for options relative to realized volatility due to their focus on attention grabbing announcements.“ by Benjamin Felix
- “For most investors I think building wealth is not something that happens with one big trade like winning the lottery. Its going to be a long and relatively boring process that consists of saving and investing in a diversified low cost portfolio.“ by Benjamin Felix
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Episode Information
The Rational Reminder Podcast
Benjamin Felix & Cameron Passmore
6/27/24
When witnessing the dramatic payouts of miracle trades, it's easy to be lured into thinking that your big score is just a few trades away. But as is evident in trading options for retail investors, it is neither quick, simple, nor easy to make guaranteed returns on your investments. In today's episode, Ben and Cam walk us through the many reasons why trading options is a losers’ game; especially for retail investors. Trading options is definitely today's hot topic and we unpack how the recent resurfacing of Roaring Kitty affirms how life-changing payouts are the exception rather than the rule. We dive deeper into trading options and their uses, the trading demographics of the current market, why trading options are an expensive choice for retail investors, and why people still choose to trade even when doing so at a loss. To end, Ben and Cam highlight the dangers of being a copycat and how social media adds fuel to the fire and we hear some heartwarming Rational Reminder Podcast reviews from a few of our dedicated listeners.
Key Points From This Episode:
(0:00:48) Why today's topic is widely discussed in the current financial climate.
(0:03:34) What we can learn from the resurfacing of Roaring Kitty.
(0:05:35) A brief background on stock options and their various uses and the current state of retail trading.
(0:08:13) Understanding the trading demographics at play in today's markets.
(0:10:24) Discussing why trading options are expensive for retail investors.
(0:12:35) Why people keep trading despite losing on average.
(0:16:16) Exploring the dangers of copying successful traders and the role of social media.
(0:17:17) The after show, headlined by inspirational Rational Reminder Podcast reviews from you, our dear listeners.
Links From Today’s Episode:
Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.
Rational Reminder Website — https://rationalreminder.ca/
Rational Reminder Email — info@rationalreminder.ca
Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/
Rational Reminder on X — https://x.com/RationalRemind
Rational Reminder on YouTube — https://www.youtube.com/channel/
Rational Reminder Email — info@rationalreminder.ca
Benjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/
Benjamin on X — https://x.com/benjaminwfelix
Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/
Cameron Passmore — https://www.pwlcapital.com/profile/cameron-passmore/
Cameron on X — https://x.com/CameronPassmore
Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/
Books From Today’s Episode:
Wealthier: The Investing Field Guide for Millennials — https://wealthierbook.com/
Papers From Today’s Episode:
‘Retail Trading in Options and the Rise of the Big Three Wholesalers’ — https://onlinelibrary.wiley.com/doi/full/10.1111/jofi.13285