I agree. I’m not saying its not without it’s risks, Options on individual stocks are pretty risky, but a call Option that follows the S&P500 over the course of 3 years? That’s a pretty safe bet. It takes a multi year US recession to lose that bet, and while certainly not impossible (we’ve obviously had a few of them over the past couple decades), but it’s the safest bet I’ve seen on Options.
And yeah, there’s somebody on the other side of the bet, in this case usually a Brokerage Firm or other large Financial Institution, as they’re the only ones I can think of that would consistently bet against the S&P. This part I’ll admit does elude me somewhat, but generally there’s always somebody who believes a US recession is coming, and occasionally they’re right, just not as often as the person willing to believe US line go up. The amount of pensions, IRAs, and 401ks that rely on the S&P is massive, and because of that I think there’s a strong incentive amongst the Fed and Wall Street to make sure that line generally always goes up.
I’m not advising people to buy Options, btw, I’m using this scenario as an illustration to point out how making money on the US stock market is usually based off of mass speculation rather than any actual value made by people actually producing goods and services on the ground floor.
a call Option that follows the S&P500 over the course of 3 years? That’s a pretty safe bet.
As long as it rises higher than the strike price + premium.
If it just rises (your “safe bet”) as expected (and never far enough above the strike + premium or you didnt exercise), you loose and the contract gets worthless.
Now i havent traded LEAPS yet, but based on what i have learned, i dont understand why someone would sell you such a contract and even if, someone else would love to jump onto that “safe bet”, if it was that safe. That someone will most likely not be you.
As far as i can see, its a bet that the broker who sold you the option was wrong/too low about expected growth.
Thats risky, potentially loosing the whole savings as you paid the premiums. Leverage sounds good when its positive, but also works negative…
I agree. I’m not saying its not without it’s risks, Options on individual stocks are pretty risky, but a call Option that follows the S&P500 over the course of 3 years? That’s a pretty safe bet. It takes a multi year US recession to lose that bet, and while certainly not impossible (we’ve obviously had a few of them over the past couple decades), but it’s the safest bet I’ve seen on Options.
And yeah, there’s somebody on the other side of the bet, in this case usually a Brokerage Firm or other large Financial Institution, as they’re the only ones I can think of that would consistently bet against the S&P. This part I’ll admit does elude me somewhat, but generally there’s always somebody who believes a US recession is coming, and occasionally they’re right, just not as often as the person willing to believe US line go up. The amount of pensions, IRAs, and 401ks that rely on the S&P is massive, and because of that I think there’s a strong incentive amongst the Fed and Wall Street to make sure that line generally always goes up.
I’m not advising people to buy Options, btw, I’m using this scenario as an illustration to point out how making money on the US stock market is usually based off of mass speculation rather than any actual value made by people actually producing goods and services on the ground floor.
As long as it rises higher than the strike price + premium.
If it just rises (your “safe bet”) as expected (and never far enough above the strike + premium or you didnt exercise), you loose and the contract gets worthless.
Now i havent traded LEAPS yet, but based on what i have learned, i dont understand why someone would sell you such a contract and even if, someone else would love to jump onto that “safe bet”, if it was that safe. That someone will most likely not be you.
As far as i can see, its a bet that the broker who sold you the option was wrong/too low about expected growth.
Thats risky, potentially loosing the whole savings as you paid the premiums. Leverage sounds good when its positive, but also works negative…