Thanks to sophisticated technology, anyone can access online brokers and have direct access to trading. Anyone can place trades without any knowledge or guidance. You might be thinking, “Wow, that sounds like a bad idea. Who in their right mind would risk money with no knowledge?” Well it gets better than that- let me tell you about YOLO trading!
What is YOLO trading? Well… haven’t you heard that millennials have turned the stock market into the worlds largest casino? They did it through YOLO trading. It is the art of taking insane risk on trades that are unlikely to succeed. Yes, this seems absurd, but surprisingly, there is a lot of hype around this style of trading. Believe it or not, the hype is understandable.
Although I don’t agree with YOLOs, nor do I take YOLO trades, I understand the logic well. The ideas behind YOLO trading actually make sense.
Arguments For YOLO Trading
I’m not here to convince you to take YOLO trades. I just want to answer the question you came with: What is YOLO trading? Since you asked, I’m going to give you as much knowledge about the subject as I possibly can.
Without further ado, let’s look at the reasons why many find YOLO trades to be so lucrative.
Better Odds Than Playing Lotto
We have all played lotto at some point in our lives. The dreams of waking up and finding out that we won tons of money are delightful. But when we look at the odds of winning the lotto, our dreams are crushed. Just look at these stats that were published by CNBC:
- Your odds of winning the Powerball jackpot are 1 in 292,201,338.
- The odds of winning the Mega Millions jackpot are 1 in 302,575,350.
- Overall odds of winning any Powerball prizes are 1 in 24.87.
Why spend money on something that has below a 1% chance of paying out? You barely even have a 4% chance winning a small Powerball door prize.
Purely gambling with options in the stock market can have better odds of paying off.
Odds Of A Profitable YOLO Trade With Options
Most option traders agree that option Greeks reflect probabilities. Many believe that the delta value of an option shows the likelihood of an option expiring in-the-money. Every option trader wants their option contract to go in the money. Option contracts that go in the money gain $100 (per contract owned) for every 1.00 the underlying moves.
Options that are out-of-the-money usually have a 0.22 delta. That would equate to a 22% chance of expiring in the money. You could randomly pick an option to buy and still likely end up with a delta over 0.05 (5% odds).
I’m no rocket scientist, but those odds look better than playing lotto.
Fun fact: this is why YOLO trades are also known as “lotto trades”.
Ease Of Access
Why go out to a casino when you could have the same fun from home? Wouldn’t it be nice to get rich while wearing your pajamas in bed? You can get the same thrills and perks by making YOLO trades from home. All you have to do is pick up your phone or fire up your computer.
OR
Imagine placing a bet, going to work, and then coming home to find out you hit big. You could place your bets from anywhere at anytime as long as the market is open and you have a signal. It’s just too easy to place YOLO trades. The ease of access makes it so much more enticing.
YOLO Trading Can Pay Off Big Time
Sure, you won’t become a millionaire in one shot, but your gains could compound quickly. If you’re having a lucky streak, why not YOLO your gains and try to double or triple them?
If you want to see some serious YOLO trading, visit r/wallstreetbets on Reddit. It seems like those guys only care about YOLO-ing their money over and over again.
Browse through the “gain porn” and you will be amazed at how rewarding YOLO-ing can be. Some of the members of that community have become millionaires. Many of them have had YOLO trades that returned 500%+.
Just look at what u/Laikabowls did- this user supposedly took their entire 401k and put it into a YOLO trade that returned 530%!
Arguments Against YOLO Trading
Now that you know how wonderful YOLO trading can be, it’s time for me to burst your bubble. Sorry, but it is for your own good. I don’t like seeing blown up accounts.
Let’s walk through the reasons why you shouldn’t do any YOLO trades.
The Odds Are Still Stacked Against You
Again, this goes back to understanding how option Greeks work. Time and market volatility work against you. Options lose value every day. The value that an option loses every day increases as it gets closer to expiration. It would suck to place the correct bet, but be off with the timing. I’d be upset if I lost my money and then saw how much I could’ve made.
Market volatility works against you with options. If you buy an option while implied volatility levels are high, you will have to pay more for your contract. Ready to hear what’s worse? You can buy while implied volatility levels are high and then they crash the next day. Yeah, you could lose 50% of your money without the stock even moving.
But wait- there’s more! Don’t forget that you have to either pick a call or a put. That alone is a 50/50 chance. If you want to run the numbers, you will see that picking an option with a delta of 0.10 will still only give you a 5% chance of being right.
Ouch! And we thought it was easy to make money with YOLOs….
It Can Become A Silent And Deadly Addiction
Making money can be addicting. Everyone loves making money. When you start making money, you’re naturally going to want more of it. So what are you going to do? You’re going to get yourself stuck in an endless cycle of gambling. Don’t get me wrong, you can make a ton of money like this, except when you don’t….
YOLO Trading Losses Do Add Up
Losing money has a much worse psychological impact than making money. When our money gets taken away from us, we get upset and want to get it back right away. Gamblers with horrible addictions know this well. The only way to make back money from losses is to risk more money. You can do that as many times as you want. Until your money runs out, of course.
We aren’t even going to get into what can happen if you end up losing EVERYTHING. I’ll let you use your imagination on that one.
Should You Place YOLO Trades?
At the end of the day, it’s your money. You can do whatever you want with it. Take your chances with YOLO trades in the stock market or invest it wisely. That is entirely up to you.
Personally, if I were to place YOLO trades, I would do it like this:
I would put my money into solid investments, preferable ones that pay dividends. Then I would take my profits and use those for YOLO trades. That way, if I end up losing money, my investments will cover the loss.
Alternative To YOLO Trading
If you’re still stuck on the idea of YOLO trading, I would advise you to look into theta strategies. They will significantly increase your odds of success. In fact, theta trades can give you over an 80% chance of being profitable. The profits are smaller, but there is a lot less risk.
Take a look at this Ultimate Guide For Theta Strategies and you will see the perks. You can YOLO trade with peace of mind.
Did you like this post? Do you YOLO trade? What would you do? Make sure to let me know!