Surprise it seems that stock gamblers are on the rise. But, sooner or later, they will lose most—if not all—of their recent gains.
Just look at options trading, which has been surging. Many traders use options as a cheap way to try hitting the jackpot: stock-market Powerball. I have gone to a couple of seminars where people were trying to sell more seminars on the topic.
I went because I was mildly curious, having had to master options trading theory to be able to pass my Series 7 exam when I worked as compliance and financial planning for a group of financial advisors. I know the risks involved of uncovered trades, which is what is being done.
In late August, a record 62% of premiums paid for options initiating bets on rising stock prices came from people buying no more than 10 contracts. (The long-term average is 34%.) Nearly all such small-fry are inexperienced retail traders, says Jason Goepfert of Sundial Capital Research in Minneapolis, which tracks market sentiment.
In the week ending Sept. 4 alone, says Mr. Goepfert, small traders shelled out $11.5 billion this way—an all-time high and nine times last year’s average. To put that week’s bets in perspective, in all of fiscal 2019 Americans spent $91 billion on lottery tickets.
In my mind the risks outweigh the possible rewards with uncovered “puts”. Covered sale of puts can be worthwhile, if you truly follow buy low and sell high method of investing. Otherwise, I suggest chasing dividends.