The Risks of Retail Options Trading for Investors

Retail options trading is often a losing game for most investors, driven by speculation and high transaction costs.

### The Risks of Retail Options Trading: A Cautionary Tale
* 📏 It's important to correct a misconception about my height, as I am actually **6'10 or 6'11 with hair**, contrary to what was stated in a recent video by Patrick Bole.
* 💰 A notable case involved an options trader who turned **$88,000 into $415 million** but lost it all by 2022, leading him to sue his bank for **inadequate financial advice**.
* 📉 I caution against relying on banks for financial advice, as they often **promote their own products** rather than genuinely beneficial options.
* 📊 Options trading can be a "**losers' game**" for most retail investors, with **over 75% of trades resulting in losses**, making it akin to **gambling** rather than a sound investment strategy.
* 📈 Research indicates that exposure to successful traders can lead to **increased risk-taking among retail investors**, further exacerbating their **losses in the options market**.
* 📉 A 2023 study revealed that retail investors often trade **risky options with high bid-ask spreads**, resulting in **substantial financial losses**, especially during speculative frenzies like GameStop.
* 🧩 Retail investors are often unaware of the **high transaction costs** associated with options trading, which can lead to average **losses of 5-14%** due to poor trading behaviors.
* 💡 Ultimately, building wealth requires **consistent saving and investing in a diversified portfolio**, rather than chasing quick gains through options trading, which is more likely to lead to **financial ruin**.

Why You Will (Probably) Lose Money Trading Options

I post videos on investing, financial decision-making, and living a good life.

My name is Ben Felix. I am a Portfolio Manager and the Head of Research at PWL Capital. I am a CFA charterholder and CFP professional. I am securities licensed in Canada by CIRO.

All channel content is produced and owned by PWL Capital Inc.


Ben Felix

Patrick Bole mistakenly portrayed the speaker as shorter than Tony Robbins.

An options trader in British Columbia turned $88,000 into $415 million but lost it all by 2022 and is now suing for better financial advice.

The speaker, Ben Felix, warns that retail options trading often resembles gambling and is a losing game for most investors, despite the potential benefits of options.

The Impact of Influencers and Gamification on Retail Trading

Influencers, easy online trading, and gamification have significantly increased retail trading's role in the options market.

Successful traders' stories and aggressive promotion of options trading by brokerages create a risky environment for retail investors.

Despite the allure of quick wealth, retail options traders have collectively lost billions, with the high volatility and skewed returns of options trades contributing to their struggles.

The majority of options trades result in losses, with over half of portfolios losing more than 90% of their value.

A study of 68,000 trading accounts shows that retail investors take larger losses on options trades compared to equity trading, and they are more likely to be single men with low incomes and little investment experience.

The trading patterns of retail investors, including a preference for risky options and attention-grabbing stocks, suggest that gambling and sensation-seeking, rather than hedging, are the primary motives behind their options trades.

Retail investors exhibit three detrimental behaviors when trading options: overpaying, incurring high bid-ask spreads, and responding slowly to announcements, leading to average losses of 5-9%.

Simple option strategies dominate retail investors' choices, yet even the top 30% struggle to make profits.

The shift to complex multi-leg options has resulted in even greater losses, with a negative 16.

4% return over three days on average, highlighting the common pitfalls and misunderstandings in options trading for retail investors.

The Challenges for Retail Investors in Financial Markets

Retail investors face significant disadvantages compared to institutions, lacking resources, information, and knowledge.

The options market is particularly unfavorable for retail investors, providing institutions with opportunities to profit at their expense.

Building wealth is a long-term process that requires saving and investing in a diversified, low-cost portfolio, rather than chasing big wins through options trading.