It’s important for every trader to understand that his* trading decision-making process can have an impact on your his overall volatility and performance. There are two main approaches to trading: investing and speculating. An easy way to differentiate between investing and speculating is to look at the amount of risk involved and the time horizon. Speculation is generally high(er)-risk and short-term focused. On the other hand, investing is typically considered lower-risk and longer-term focused. In his his classic book The Intelligent Investor the great value investor Benjamin Graham eloquently explained: “The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. The speculator’s primary interest lies in anticipating and profiting from market fluctuations. The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels, at which he would be wise to buy, and high price levels, at which he certainly should refrain from buying and probably would be wise to sell.” – Benjamin Graham, The Intelligent Investor Investing and speculating are not gambling IMHO. Gambling is to play at any game of chance for stakes or, in other words, to stake or risk money, or anything of value, on the outcome of something involving chance. In the gambling business the odds are always with the house. In the long run the house always wins. On the other hand investing or speculating is to put money to use, by purchase or expenditure, in something offering profitable returns. Had you believed Steve Jobs hype about his products and bought into his company 10 years ago (at 12.20 a share) would be, as they say, bucks up now. Best *his can also be a her (or even a person who has had a sexual reorientation operation)
If you buy stock in a company that has any debt outstanding you're buying an option. If you buy a piece of property that doesn't have the optimal improvement already built on it you're buying an option. If you buy a house using a mortgage you're buying an option. If you lease a car you're buying an option. Almost everything you transact has a real option component built into it. Once you realize that and start pricing it into those transactions it will change the way you look at the world.