The Stock-Market Trade That Has Some Investors Seeking Big Returns
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What is the main topic discussed in this episode?
Here's your Money Briefing for Tuesday, March 19th. I'm J.R. Whalen for The Wall Street Journal. People often buy stocks, checking in on them from time to time with the hopes they'll go up over a month or a year. Some investors are placing high-stakes bets that stocks will go up within a day, and in some cases, a couple of hours.
Oh, these are adrenaline-fueled trades. And one thing that I found fascinating about this is that individual investors that I've long spoken with have said to me, I'm not just looking for a 5% or 6% return. I'm looking for that 100% jackpot, 500% return, maybe even 1,000% return.
But with that high reward comes high risk. We'll talk to Wall Street Journal markets reporter Gunjan Banerjee about short dated options trading after the break.
Short-dated options trading has become all the rage among individuals, attracting scores of rookie investors. Wall Street Journal markets reporter Gunjan Banerjee tried it out and joins me.
What are short-dated options and how do they work?
Gunjan, what is short-dated options trading and how does it work?
Basically, an option is a contract that gives you the right to buy or sell shares or ETFs or indexes by a stated date and at a specific price. And you have options that have a range of expiration dates, you know, spanning from months out, sometimes even years out, or days. And Recently, even hours. So the contracts that expire in hours or days, those are some of the shortest dated contracts. They're also some of the riskiest, and they're the ones that have exploded in popularity over the past year.
So this is more than hoping your stock goes up. This is actually putting a bet on that.
Exactly. So one thing that I found fascinating about this is that individual investors that I've long spoken with, you know, have said to me, I'm not just looking for a 5% or 6% return. I'm looking for that 100% jackpot, 500% return, maybe even 1,000% return. And I've been inundated with screenshots, brags about these for months now.
A thousand percent. I think we've all had dreams about that at night, but I don't know about realistically during the day. This all seems more risky than just buying and selling stocks.
Why are traders chasing huge returns with options that expire in hours or days?
Why has it become so popular?
It is so much riskier than buying or selling stocks or even trading options that expire in months from now. Think about it like, you know, cruising down the highway in a Ferrari rather than a minivan. Your gains or losses can just accelerate that much faster.
So there's an excitement factor here that's bringing people in.
Oh, these are adrenaline-fueled trades. And certainly while I was trading these for one week in my experiment, I felt the ups and downs of that. You know, my mood darkened when a trade kind of went against me. I was constantly inundated with alerts from Robinhood on how my positions were doing, trades on my watch list. So this was something that was always on my mind. And when I did notch a win, it kept me wanting to go back for more.
Let's talk about your experiment here in joining in on the short-dated options trading. How'd you get started?
This was my first time doing this. And this, by the way, is not something that journal reporters are typically allowed to do. But I had been writing about this phenomenon for months. You know, this is a corner of the market that I've followed for a really long time. And Okay. So what kind of trades did you make? Yeah. Well, let's just say I made a lot of bad trades. I made many, many bad trades, made many mistakes that I think a lot of rookie investors could probably relate to. Two of my first trades were immediate flops. There was this one stock, Zim Integrated Shipping Services. It had been trading like crazy over the past month and just recorded these like huge ups and downs. And I was like, oh, this is the perfect thing to trade options on.
It's so volatile. I kind of made this bet.
How does short-dated options risk compare to buying and holding stocks?
I bought a call option that its run would continue. Immediately lost money. I bought a call option tied to the NASDAQ. Immediately lost money. I got off to a rough start. And what I kind of noticed in myself was as the week progressed, I got increasingly desperate to
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:03–1:24
2
What are short-dated options and how do they work?
1:24–2:42
3
Why are traders chasing huge returns with options that expire in hours or days?
2:42–4:44
4
How does short-dated options risk compare to buying and holding stocks?
4:44–6:47
5
What happened during the reporter's week-long experiment trading short-dated options?
6:47–9:27
Speakers
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