Don't Trade Options

A blog about business and economics.
July 10 2013 11:44 AM

Becoming a Mom & Pop Options Trader Is A Great Way To Lose Money  

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Don't be this guy.

Photo by RIZWAN TABASSUM/AFP/Getty Images

Here's a bit of financial advice for you: Don't trade options. Not that there's anything wrong with options. But the big problem with trading options is that it involves trading things. And you should not be attempting to trade things for profit. If you can somehow obtain a salary from some kind of larger financial institutions to work in trading, then good for you. But if you are holding down a job doing something else, do not attempt to make a profit trading things on the side.

[Mark] Brisley began with the basics, buying and selling "puts" -contracts that convey the right to sell a stock - to earn a little bit extra and protect the family portfolio from another debacle. Initially, he didn't dabble in "calls" - contracts that convey the right to buy a stock.
Now, five years later, he is a habitual trader who has embraced increasingly arcane options strategies. "We treat it almost like a business," says Brisley, 51.
Brisley may be the new typical options player - a do-it-yourself investor with a touch of gray.
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You know what else would have made you money over the past five years? Buying and holding S&P index funds. Because guess what—after the market crashed it went up again. The value of my 401(k) has risen enormously since I joined Slate not because I did anything, but simply through the pure magic of everyone makes money when the economy improves and the market goes up. And the question to ask yourself isn't "can I make money" but "can I beat the market?" and the answer is "no." I'm not going to tell you that nobody can beat the market. But the person who can consistently beat the market is not you. He has a much nicer office than you, and he charges a healthy fee for his services. If you are an IT consultant in Colorado Springs, you should invest your money in a low-fee lifecycle fund and forget about it.

Now if you happen to enjoy hobbyist gambling as an entertainment pursuit, then at the margin "investing" less money at the craps table and more money on options trading makes some sense. And there's nothing wrong with entertainment! But know what you're getting yourself into to.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.