We all know when you purchase a stock for the company you are basically investing in the company since they release the IPO as a financing. However trading options, is it really investing? For me I like the fact it can be highly proftable but looking at the larger point of view, it feels like it resembles more like a decentralized gambling casinos with no dealer. What do you think? Sorry if my thought process sounds bit harsh on option traders but I do also trade options so just kind questioning.
What is practical reason for this question? Someone can call it gambling, I call it trading, long term trader can call it option investing... Most important thing is if you are making money. Don't care about how to call what you do...
Unless you are using your shares of stock for voting purposes or you sit on the board, whether it is stocks or options you are buying something hoping to sell it at a better price plain and simple (or sell to buy later). I think the strategy you use will determine whether you are investing/trading/gambling/ etc.
A trader in finance is a professional who provides liquidity for financial markets, directly by slippage or indirectly by passing others' trades with minimum slippage. An investor seeks profits generated by goods/services sold by a company, directly through dividends or indirectly through share price. Your answer is no...please also be mindful of the many idiots on ET. There are some good threads and folks isolated from everyone else imo.
Trading options is not investing since you never hold the underlying unless you plan to exercise or get assigned. I have a valuation portfolio that I trade options around and I also have options trading strategies. I make sure to keep the distinction very clear. An investment is like a house, I don't need to get a price every day, even every week. If I need to get a quote on a regular basis it is not an investment.
Trading options is about risk transference. If you wish to have broad or narrow definitions of investing, trading, speculating etc thats up to you. If you then wish to add the additional definitions around the organisations or lack of them (eg; casino, dealer, no dealer) with options then that is also a different matter. 2 cents.
Honestly, I dont like the distinction people tend to make with 'investing' vs 'trading'. I think all bets on the market are forms of speculation. The only difference between what some consider 'investing' and 'trading' is the time horizon, the former being "long term" whatever that means and the latter being "short term". The term in lengths of time is arbitrary to me. Mostly it is just some arbitrary distinction for tax purposes where 'trading' is treated as income and 'investing' is capital gains with a better tax treatment. While there are some who consider "investing" as exclusively the act of buying an asset with an intent of collecting dividends for the long term.</br > </br > But, if you are long of the options, you can call it investing. Long of calls only that is. Because if you are long of puts, you're betting against something, which akin to shorting, is not considered 'investing'. </br > </br > Some hedge funds take on massive positions in the options market before they enter an equity position because it doesn't have as direct an impact on the equity markets. Carl Icahn uses this strategy a lot with synthetic long stock positions. </br > </br > Overall, I think we should get rid of the differences. I think they are both "trading" and "investing" are the same. Someone who is "investing" "long term" in dividend payers, might themselves sell too if the company is about to file for bankruptcy. This could be "short term" too in the grand scheme since they are not holding it for decades and passing it on to their family. Ultimately, everyone is just risking money to make money. It doesn't matter what strategy you use, the fundamental act of risking money to make money is across the board. Even if you are an options seller, or a short seller. Yet somehow "speculators" often get looked down upon by "investors" and also they the "speculators" have less ideal tax treatment too because of their "trading" versus "investing". So my own view is they are one in the same. Except of course, tax treatment treats things differently.
reviving early topics, good points. I think if you hold large amount of stock (or even small to moderate amount) for long position for extended period of time, it is definitely fits the definition of "investing.". For options, I also started to wonder, whether when you hold onto the long call options for long time. Is it really investing? It is hard to say but I am tending toward no, because the money you put into the call options are strictly exchanged between the hands of traders. And when you pursue the source of options, it is not the company who raised money to write the options so i dont think you are investing in company when you have a call long options isn't it? That brings up another question of whether holding the call long options will be treated as favoribly as stock.