Is it possible to be a stock market addict? Well, if you are a believer in the numerous other addictions in the American lexicon of late, ranging from sex addiction to internet addiction, then, you’d be hardpressed to say the euphoria and withdrawal associated with stock trading isn’t an addiction for many. Like drugs and other addictions, in the constant act of “chasing the dragon”, one has to continuously try to exceed the prior high, chasing the ultimate reward which can never be achieved.
So, after trading stocks and losing that buzz, a natural transition is then into leveraged ETFs (which are horrific for most retail investors that don’t understand them) and then finally, derivatives – namely, options. I’ve written about stock options on numerous occasions, like this investment that pays off 100:1, Black Swan events, and how I made 164% in a single day, and just last week, how I make a few hundred bucks every quarter shorting the US Treasury.
The Data – Options Trading is Exploding
Well, everything I stated above is a concept and my opinion. So, where’s the data? Right here.
BusinessWeek did a writeup this week on the explosion in options trading and how all major brokerages are flocking to these derivatives or just buying options trading outfits outright. What draws investors to options is leverage. For just a few dollars, you can hold control over an entire contract of 100 shares. Depending on which strategy you employ, you can actually sell naked options and collect premiums (while opening yourself up to infinite downside risk), buy out of the money options for the prospect of 100:1 or even 1000:1 returns if a low-likelihood event occurs, or even use them to protect the underlying stock you already own. There are literally dozens of strategies and everyone’s got a story to tell about killin’ it with options. What you don’t always here are the horror stories. After all, if it were that easy to mint money trading stock options, wouldn’t everyone be doing it (and hence, options premiums would increase as a result, thus wiping out any market inefficiencies)?
Am I Addicted?
I don’t consider myself an addict, but I will be the first to admit that I do derive some sort of emotional response from making a trade and then tracking its performance. I’ve been trading stocks and options since I was a teenager and I’ve made plenty of mistakes along the way – which have tempered my enthusiasm for trading in volume. The one thing I do to keep myself in check is to constantly hold myself accountable, reinforce to myself that markets are quite efficient (not 100%, but very close), and that there are very few trades worth making. I’ve lost money too many times to either bad trades or commissions, so what I have now is a rather high Beta, but steady set of stocks (see portfolio updates) that I’ve held for a few years for the most part, and some recurring options strategies I employ. I haven’t made a trade in a couple weeks, nor do I check my trading account daily. Hopefully that’s convincing enough… but I do know people who can’t get enough and you probably do too. It can be an expensive habit, especially since most people get it wrong. To keep it a little less expensive if you dabble though, here’s an optionsXpress promotional code.
Are You Addicted to Trading?
Do You Know Anyone Who Is?