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What will happen to large companies once poor people have no more money to use?
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this post was submitted on 11 Apr 2024
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Every trade has two sides. Someone has to sell you the options contract. No one is out there selling "free money" contracts. Why wouldn't they just give you the money and skip the song and dance?
To everyone else: please don't trade options if you don't understand them, there is no quicker way to drain your savings.
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.