Options craze

[enoch01]

Is there a bubble forming in options trading?

 

http://online.wsj.com/article/SB125202073403184971.html#mod=todays_us_nonsub_money_and_investing

 

The 57-year-old chief financial officer of her husband's pain-management clinic in Pensacola, Fla., trades options for herself and other family members.

 

Surely there must be a way to profit by inverting this, but I don't know what it is.  However I have to believe that a lot of people who think they know what they are doing but don't will blow up some time down the road.  I don't think I have any competitive advantage trading options, so I avoid it.  More from the article:

 

The number of investors attending Schwab's options-trading seminars "has grown dramatically this year," says Randy Frederick, Schwab's director of trading and derivatives. He has hosted seminars in more than 40 cities this year.

 

So what's the other side of an everyone-can-make-money-trading-options coin?

 

E

[Crip1]

I'd like to be able to short the newbie options-traders' net worths. Regrettably, I do not think that we can do that.

 

What this means is that, potentially, we will have higher levels of volitility which will lead to, hopefully, more mis-pricings. Besides that, I've got nuthin'.

 

-Crip

[Partner24]

Welcome to Las Vegas!

[woodstove]

It's the "stock advice from man in street" stage.  The money on sidelines is now returning to the market.

 

One strategy might be to sell into price extravagance, gather cash for probable future dis-enthusiasm.

 

Another view - options because people who got burnt are trying to make it back on speculative stuff.

So perhaps dull solid businesses continue to be underpriced - something like 1999 dot-com vs quality.

[EdWatchesBoxing]

These people trading options probably think it's safer because they don't have to put all the capital up. They think only potential loss is the option premium, which is true  :)

 

I think yudeng shared the right type of thinking when it comes to options. In general, be a buyer of LEAPs and be a seller of shorter term volatility.

[username]

The derivatives market would be more liquid.

Negative expectancy of newbies (most likely), means more money to the participants who take things seriously, and to the brokers.

[CONeal]

The best way to invest in option activity will be through CBOE.  Last I heard they were still in the process of being split from CME Group.  Last I heard they were planning to list CBOE so it could be publically traded.  I've had the same thought about being able to invest in the activity of options.  Although, with all the volitity in the market its making option volume skyrocket, it seems like options are in bubble mode.

 

 

[kiwing100]

 

I read the article - it seems that retail investors are writing options - both puts and calls.  My sense is that retail investors are looking for income especially in light of low interest rates on their cash deposits.  I would not be surprised if their brokers are recommending this strategy to them. 

 

It is interesting to see that retail investors go hunting for income yield when cash deposit rates are low - I have seen it happen several times - these investors forget about the downside risk on their capital when all they focus on is the income yield - especially when the income yield strategy has worked well recently.  It will most likely end up horribly as they seem to be writing naked call options.