Why are Stock Options Legal?

[NATI BENGALS]

Seems to me making money off of someones life savings and retirement going down shouldn't be a thing. Big money with options allows them to completely manipulate the market.

[Belsnickel]

(10-28-2023, 02:11 AM)NATI BENGALS Wrote: Seems to me making money off of someones life savings and retirement going down shouldn't be a thing. Big money with options allows them to completely manipulate the market.

Because capitalism, baby! It requires winners and losers, so if you're whining about the winners, guess what you are.

[Goalpost]

I own stocks, but don't own options. Statistically, 61 percent of Americans own stocks, and 23 percent own options.

I invested in 401k(mutual funds) and that was enough to retire with after 35 years. Option trading wasn't needed outside of that.. Nor was trading stocks for that matter. Just long term holding where you contribute an amount each paycheck.

[basballguy]

(10-28-2023, 02:11 AM)NATI BENGALS Wrote: Seems to me making money off of someones life savings and retirement going down shouldn't be a thing. Big money with options allows them to completely manipulate the market.

What? No

Can you provide a bit more context as to what you’re referring to?

Options are definitely riskier but it’s not like people are investing their 401k in them. As far as I know most plans prevent that.

Options are commonly used as part of the compensation plans for companies…especially in startups. (ATT does it as well).

People that own stocks sell options on their stock all the time.

Now if this is wallstreetbets 0DTE gambling complaint, I got nothing for you. People that do that are stupid.

[NATI BENGALS]

(10-28-2023, 08:28 AM)basballguy Wrote: What? No

Can you provide a bit more context as to what you’re referring to?

Options are definitely riskier but it’s not like people are investing their 401k in them. As far as I know most plans prevent that.

Options are commonly used as part of the compensation plans for companies…especially in startups. (ATT does it as well).

People that own stocks sell options on their stock all the time.

Now if this is wallstreetbets 0DTE gambling complaint, I got nothing for you. People that do that are stupid.

You’re right I should have been more clear. I wasn’t talking about the employee benefit kind of stock options.

I was talking about the puts and calls. Where it seems to me big money has a clear advantage. And they can make money whether the stock price is going up or down.

We have some massive too big to fail banks, hedge funds, and a really loaded top 1% who control a lot of money. I’m not sure what if any protections are in place to prevent them from manipulating a stock price and really cleaning up with options.

I don’t know why it has to be a thing. I’m pretty sure the large majority in this country (who aren’t boomers with pensions) will be dependent on the stock market for retirement. Puts and calls just seem like a way to rig the game against the average Joe. I have a hard time understanding why something that seems so unfairly advantageous to the super wealthy plays such a large part in our main means of retirement savings.

[*pally*]

(10-31-2023, 04:46 AM)NATI BENGALS Wrote: You’re right I should have been more clear. I wasn’t talking about the employee benefit kind of stock options.

I was talking about the puts and calls. Where it seems to me big money has a clear advantage. And they can make money whether the stock price is going up or down.

We have some massive too big to fail banks, hedge funds, and a really loaded top 1% who control a lot of money. I’m not sure what if any protections are in place to prevent them from manipulating a stock price and really cleaning up with options.

I don’t know why it has to be a thing. I’m pretty sure the large majority in this country (who aren’t boomers with pensions) will be dependent on the stock market for retirement. Puts and calls just seem like a way to rig the game against the average Joe. I have a hard time understanding why something that seems so unfairly advantageous to the super wealthy plays such a large part in our main means of retirement savings.

It is absolutely rigged against the average citizen. For instance, the massive profits many companies have been experiencing have often been used to buyback their stock. In other words taking it out of the public marketplace. In turn, this stock has been given to already well compensated top executives and board members as options…not to the average employee. That then puts dividends and other benefits of stock ownership into fewer hands. Managed properly there are also tax benefits that average citizens can’t access

[*Nately120*]

(10-28-2023, 06:32 AM)Belsnickel Wrote: Because capitalism, baby! It requires winners and losers, so if you're whining about the winners, guess what you are.

I'm a winner because it's rigged against me, don't you know how this stuff works?

[basballguy]

(10-31-2023, 04:46 AM)NATI BENGALS Wrote: You’re right I should have been more clear. I wasn’t talking about the employee benefit kind of stock options.

I was talking about the puts and calls. Where it seems to me big money has a clear advantage. And they can make money whether the stock price is going up or down.

We have some massive too big to fail banks, hedge funds, and a really loaded top 1% who control a lot of money. I’m not sure what if any protections are in place to prevent them from manipulating a stock price and really cleaning up with options.

I don’t know why it has to be a thing. I’m pretty sure the large majority in this country (who aren’t boomers with pensions) will be dependent on the stock market for retirement. Puts and calls just seem like a way to rig the game against the average Joe. I have a hard time understanding why something that seems so unfairly advantageous to the super wealthy plays such a large part in our main means of retirement savings.

I'm curious how you believe options are being used to rig the game against the average American.  

Objectively, options are a way for individuals to "invest" without needing large amounts of capital.  It's especially valuable to those that want to invest in say, AMZN but only have a few hundred dollars.  If there's a stock you like, you buy a call option against it.  If there's a stock you dislike and think is going down, you buy a put.  People often call it gambling because nobody ever knows which way the market is going to go, but this aspect is not rigged (generally speaking).  

Options are definitely riskier and if you have no idea what you're doing, then you can absolutely lose on your investments very quickly, but that's an education problem and not a "system is rigged" problem.  

The system is definitely viewed as rigged over the short term against the average investor but not in the way you're thinking (I believe).  You should go down the rabbit hole of dark pool trading.  

(10-31-2023, 07:24 AM)pally Wrote: It is absolutely rigged against the average citizen.  For instance, the massive profits many companies have been experiencing have often been used to buyback their stock.  In other words taking it out of the public marketplace. In turn, this stock has been given to already well compensated top executives and board members as options…not to the average employee.  That then puts dividends and other benefits of stock ownership into fewer hands.  Managed properly there are also tax benefits that average citizens can’t access

Why wouldn't you want a company to use it's profit to buyback a stock?  Any fiscally responsible company SHOULD be doing that.  

Stock buybacks benefit literally everyone.  A diluted stock is what hurts the average shareholder.  You have it completely backwards.  When a company initiates a buyback, they are decreasing the number of available shares to trade.  This is meant to drive value to shareholders.  In theory, that means any shares you own go up...any shares your 401k funds own goes up....any shares your pension plan or IRA own goes up.  

More often than not, shares are retired when a buyback happens.  If it's used as employee compensation or maybe to consolidate majority ownership, it doesn't matter.  The buyback happened against the float (unowned shares).  Everyone got their value out of it already.  

This might be the first time I've ever seen anyone believe a buyback is bad.  

[NATI BENGALS]

(11-03-2023, 06:53 PM)basballguy Wrote: I'm curious how you believe options are being used to rig the game against the average American.  

You should go down the rabbit hole of dark pool trading. 

Using company news, geopolitical, and economic events combined with algorithms to move stock prices with fear or hype. And cleaning up with options when it gets the desired price movement response.


Never heard of it. Does seem shady af at first glance.

[JustWinBaby]

(11-03-2023, 08:02 PM)NATI BENGALS Wrote: Using company news, geopolitical, and economic events combined with algorithms to move stock prices with fear or hype. And cleaning up with options when it gets the desired price movement response.

That's not how options work.  To buy an option, someone has to sell it to you.  They may or may not be doing so to offset an existing position to manage risk (which is why speculative option trading exists - to provide liquidity and market efficiency).  Conversely, to sell an option someone has to buy it.

As baseballguy explained, it doesn't affect the company value. It's a zero sum game - one side of the option transaction effectively is going to pay the other.  There is no net gain, so the existing shareholders don't gain or lose anything.  

Option award to executives are a different story.  But that's about corporate governance and the Board.  I'm guessing if you own shares you've never bothered to vote a proxy.  Mutual fund managers with huge AUM also typically don't push back on options grants and/or allow Boards to get stacked with members favorable to management.