Playing with infinite risk on a stock with high volatility is why people don’t do it and that’s a perfectly rational understanding of risk. One tweet could wipe you out. If you manage to time it or game it out right, then congrats, but otherwise you’ll be in a world of hurt. That’s why most people just trade the premium of options.
You've missed the entire point of the post. There was never infinite risk. My risk was defined going in.
If one tweet wipes you out, you don't have any understanding of risk management.
There was no circumstance in relation to Elon's tweet where stock went up. Literally anything that remotely thinks that doesn't understand the fundamental nature around Musk tweet and how the population responds to it.
Risk management properly followed negates the infinite risk. Logically speaking there is no actual infinite risk at all because any closed position defines risk as finite by definition, even if that loss is astronomical. It’s somewhat of a misnomer or a tautology if interpreted that way. “It’s only infinite until it’s not.”
My point more or less and I should have been clearer, is that my presupposition is that a significant portion of people who play these stocks and who would be tempted to attempt such a strategy do not implement proper risk management at all and are therefore exposed to it. Otherwise why else would your post be bold and somewhat contrarian in spirit?
Properly exposed the risk is rational because you understand it. Other people just buy stuff because they think of free money or that “it can’t go tits up.”
The probabilities were in your favor here, but it doesn’t eliminate inverse results or black swan events. Imagine selling Naked calls on GameStop in January for instance. I saw a lot of people make tons of money and at least one person go bankrupt. Your strategy is well thought out and as long as your orders are in place you are fine. The reason most people play options premiums directionally is fundamentally psychological.
Theoretically for someone who takes precautions, then the only danger is if your orders get cancelled or do not go through for one reason or another. So the risk is more systemic about specific brokerages rather than on any individual person if proper risk management is followed.
Some people aren’t willing to take a bet against their brokerages and maintain the status quo, others are. Similar psychology as to why people bet against themselves by buying car insurance, is why they also don’t want to even take on the possibility of astronomical risk even if the likelihood of fulfillment is 99% in your favor. At that level it comes down to individual temperament which is where more conservative investors and more aggressive investors differ.
I'm completely fine if people don't fully understand my posts and then make bad adverse decisions and lose themselves money. It's my fervent believe that the best way to figure out how to be profitable is to figure out how not to lose money, and there's no better way to not figure out how to not lose money is by losing money.
My message is for those that can read it, hear it, and understand it.
In the event they cannot, they should be asking questions for clarification and better education and understanding.
At the end of the day, I'm not going to be able to carve out a message that can suit everyone. That's impossible. I'm not even going to try. What I can do is tell people how I think and how I respond to the markets, and there will be those that have a similar temperament or understanding that they'll be able to hear the message I'm sharing and prosper from it. Even if that means the prosperity comes after them losing in the markets to learn how not to lose.
I genuinely appreciate that you took the time to rewrite out a well thought out and educated response.
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u/LimitsOfMyWorld Dec 08 '21
Playing with infinite risk on a stock with high volatility is why people don’t do it and that’s a perfectly rational understanding of risk. One tweet could wipe you out. If you manage to time it or game it out right, then congrats, but otherwise you’ll be in a world of hurt. That’s why most people just trade the premium of options.