Odte situation reminds me of retail investors discovering $XIV, having a good time using "safe" strategies and then getting wiped clean by the volatility spike in 2018
The only way to survive in the long term is to become a part of the ecosystem that delivers more value more than it extracts. This is not impossible.
Moreover, the analogy with XIV is 100% bogus. There is nothing safe about 0DTEs. If you knew the first thing about 0DTE, you would know that it is held very selectively, not like XIV. A good number of the 0DTEs get wiped to $0 every day, not once in ten years. XIV was unforgiving just once; 0DTEs are unforgiving as a routine. Also, the logic behind inverse volatility offerings has been updated to mitigate the risk of what happened, not that it holds any relevance to this discussion.
There are plenty of reasonable arguments to short vol, eg: https://www.nomura.com/events/9th-annual-global-quantitative...
In the U.K. I was betting 5 minute binary options back in 2008 and parlays or accumulators as we call them (accys for short) have been popular for a while too.
https://www.ft.com/content/3641f944-38cc-4ed5-853a-03fab3ac4...
The forces that made those shops appear and made the greengrocers disappear are not natural, inevitable, and foolish to resist. They are just laws, laws that permitted some things and discouraged others, taxed some things and subsidized others.
I don't see how this is risk-free - surely it involves some opinion on the correlation between the assets?
It's the fact that's easy to sell that makes it attractive, not that it's easy to price.
Edit: I don't really know how pricing these things usually works but I could see taking some risk on to price these attractively
And, part of the appeal of the product, is they only pay out if *all of them are in the money. Hence the "lotto-like" return profile.
The great thing about parlays is that when people win, they win by a big multiple. So they feel they have won. But when they win, they are actually getting less than they should have gotten on their winner. The example above should 4x your money since the real chance is 25%. You punter might end up with say 3.5x, so even though he feels great when he wins, he isn't winning enough to make up the loss the other times.
Perps: Traditional markets have futures that settle on a specific date. For instance, S&P futures. This presents a couple of issues for the uninformed.
First, the settlement means your bet ends on a certain date. People want to avoid having to sell their position and put it on again in the next expiry. It also just seems like a fee grab by the exchange.
Second, the futures price differs from the index, due to financing rates being different between the assets. Remember a future is a promise to exchange at a later date, so you have to take into account the time value of money, aka interest rates. Well, early crypto didn't have a bitcoin interest rate, and so any gap between the future and the index would be an implied rate that you were punting, which nobody would understand if they didn't work in finance. In any case, there would be questions to the customer service desk about the deviation. Much better to hide the financing rate inside the perp rate adjustment that happens every 8 hours, and presents the price of the perp as more or less equal to the price of the underlying bitcoins. Early Bitmex also had the entertaining wrinkle of not being able to trade against a stablecoin, so actually you had inverse perps that settle against the crypto in kind. This creates a weird non-linearity vs the dollar, but meh whatever, number go up. These are things that the market maker understands, but the public doesn't.
Third, the automatic settlement and liquidation system is actually pretty innovative. You can give people massive leverage because you know exactly who has what position at the exchange level, in real time. Traditional markets still settle on a daily cadence (often T+2/3), meaning you could do funny shit that your PB would have to build a system to look at.
0 days: Just another way to get fleeced on spreads. There are models that estimate how likely some price is to be over a line at the settlement time. You definitely want to use statistics to determine this kind of thing, but people think they are smarter. The market maker isn't going to care terribly much, as long as he is reasonably hedged. There are well-known ways to spread your risk across options, and that's what the market maker does.
Leverage is the common denominator here. These are all bets where you can make a lot of money with a little bit of capital. It's an age-old story that people will blow themselves up with leverage. After paying fees to put on a bad bet.
The world is obscenely strange if you look hard enough. It's just that we used to do a better job of regulating those who operated in it for profit.
One of my friend has a real gambling issue and yet he was one of the highest paid person I knew. Then at some point he created a company, got funding and had 30+ employees. He was doing very well. But he was a degenerate gambler. On the weekends he'd ask me to accompany him to casinos (real ones) and he'd just burn money (his own money btw, not company money). I've seen him destroy something like $60 K in one bet in some (probably rigged) only crypto casino. His utter disrespect for money shocked me. The crazy thing is that over the years he lost it all (not just those $60K) and to this day he'll post-fact rationalize his actions. He literally burned so much money he could have FIRE'd. Maybe not mega FatFIRE, but still FIRE.
Last time he called me he asked me to lend him... 300 EUR to pay bills. He's a real friend, he could have asked 3 000 EUR, I'd have helped him pay his bills. But it's the amount that saddened me: how can you go from having so much, from earning so much, to asking for 300 EUR? (which he paid me back a few days later). How does that even happen?
Now he's literally a genius so maybe he'll come up with something. But meanwhile I'm worried and there's nothing I can do.
A friend of my great-grandmother (I knew my great-grandmother very well) lost all her family's inherited wealth because she was a degenerate gambler. Not online casinos, obviously.
I've read the book "The Player" by Dostoievsky. Twice, once when I was a teenager then once I don't remember when. To make sure I'd never end up like the people he describes in his book. He was a degenerate gambler and it's basically its most auto-biographic book (FWIW I've read Crime and Punishment too but The Player does it for me).
I'm sure half of the people who are degenerate gamblers do not do it because they have no way to get "rich". No. Half of people who are degenerate gamblers are the self-destructive types who subconsciously want to harm themselves. Who want to feel bad about themselves.
I'm sure there's truth to what I wrote too.
The popularity of lotteries suggests to me that many people feel they're losing, and they're probably mostly right in some sense.
If you’ve ever read James Suroweicki’s “The Wisdom of Crowds”, he talks about a lot of research showing that this is more accurate than the news or any single person.
I hope it continues and they don’t introduce crazy things like leverage.
There's no prediction market which will let you bet on Trump's assassination, and for good reason. But a lot of lower-profile pernicious bets slip under the radar.
The news media routinely makes predictions. When enough people believe and act on those forecasts, the prediction itself can influence the outcome. In that sense, collective expectation becomes a causal force and I would argue that there are many different people who aim to harness propanda or the media to change behavior.
There are legitimate concerns. As South Park humorously suggested this season, that some might try to manipulate prediction markets for profit. However, overall, these markets remain an extraordinary tool for generating accurate forecasts across a wide range of global events.
It’s difficult to imagine scenarios like China invading Taiwan or the war in Ukraine ending because the participants were motivated by their market positions. There are many topics where the reality reaches far beyond the reach of monetary speculation.
On the other side, it’s also possible that people who have priviledged information are using that information to place bets against inaccurate predictions and we’re benefiting from that information in the prediction market. It’s not necessarily fair to the participants as it’s insider trading, but it gets a better outcome for the observer seeking the information.
It offers actionable intelligence that is difficult to manipulate over time. When probabilities become misaligned with reality, others can take the opposite position to profit from the discrepancy. Maintaining an obviously high percentage inaccurate prediction of 80-90% would be extremely cost prohibitive.
For example according to polymarket right now, Mamdani will be the next mayor of NY, no one really knows with any certainty when the shutdown will end, the risk of a major war with China and Taiwan remains low. The chances of a Ukraine ceasefire are also extremely low.
Contrast this with YouTubers talking about Ukraine who’ve been discussing some game changing war technology that’s going to end the Ukraine war soon for the past years. If you followed them, you might have thought the war was about to end for the past few years.
decimalenough•3mo ago
> Options were 26% of Robinhood’s revenue in 2024 with an implied gross margin of over 90%.
Wow. For comparison, slot machine RTP (payout ratio) usually hovers around 91-93%, meaning a "hold" of 7-9%.
dmurray•3mo ago
Options pricing is reasonably competitive. Even a gambly thing like a Tesla zero day option has a spread of 1-2%, so someone trading it at random loses 0.5-1% per trade. And Robinhood is a brokerage, not an options market maker, so it doesn't capture all of that 0.5-1%.
You'd have to read Robinhood's financials to see what they mean by gross margin. Possibly it means if a customer deposits $1,000 and trades options, the customer eventually on average loses $900 of it? Even that seems too much TBH.
parodysbird•3mo ago
nradov•3mo ago
OutOfHere•3mo ago
verteu•3mo ago
Does this reflect brokers' cost of technology (many tickers to keep track of)? Regulatory fees? Lack of competition?
edit: Perhaps it's largely profit. Seems https://public.com/invest/options-trading is trying to undercut on price.
boringg•3mo ago
quamserena•3mo ago
verteu•3mo ago
OutOfHere•3mo ago