WHAT IS SO APPEALING ABOUT A GET RICH QUICK SCHEME WHEN THE ODDS ARE NEVER IN OUR FAVOR? – June 28, 2021
Who doesn’t want to be rich? Money can afford you all manner of luxuries, including the best one of all: quitting your day job for a carefree and financially independent lifestyle. There are plenty of reliable ways to get rich slowly. Consistently adding to a diversified, passive portfolio is probably the most reliable way, but this can take years and years and years. What’s more, you could see your portfolio get set back a decade or so when the market inevitably melts down. This is where the get rich quick scheme comes into play. I’m sure you’ve seen advertisements say something like this:
“How to build wealth fast with these easy steps.”
“This one simple trick will make you millions.”
“Get out of the rat race today and follow my wealth building advice.”
WHAT IS A GET RICH QUICK SCHEME AND WHY PEOPLE FIND THEM APPEALING?
These are examples of the classic get rich quick scheme. Many suspect “marketeers” have been selling hopes and dreams to the uninformed for years, and it’s the same story over and over again. The promise of huge returns on only a small initial investment. These incredible, easy to achieve returns will turn your life around, make everything ok, and fill the hole in your soul. Or so they say.
Throughout history, people young and old have fallen for these advertisements and as such, get rich quick schemes have been around for at least a few hundred years. Once upon a time, in 1821 to be precise, there was a Scottish explorer that famously scammed hopeful investors with the newly discovered rich and bountiful land of Poyais. The country was filled with gold and fertile soil, or so he said. UK investors were taken in by the prospect and promise of this new land and quickly lined the pockets of the Scottish explorer with their hard-earned money. There was only one problem – Poyais didn’t exist. Get rich quick schemes like this are a time-honored tale.
WHY OPTIONS ARE NOT A GET RICH QUICK SCHEME
Unless you have been hiding under a rock, retail traders today have been publicly sharing immense returns on the internet for the last few years – sometimes posting returns in the 1000s of percent over the course of just a few days. These lucky few primarily buy short-dated out-of-the-money options hoping for a big move in the underlying. When they win big they post their returns on the internet. Many traders might think: “well why couldn’t I do that?”. This guy managed to make one million dollars and can quit his job! He got rich quick!”
This kind of return is not so dissimilar to your typical run of the mill get rich quick scheme. Everyone needs to keep in mind that buying options contracts in this way is intensely risky, and the probability that you’ll win big is very small. Most people that buy options – especially these short-dated OTM options – will lose. In this way, for every person you see scoring huge returns, there are a thousand others that lost everything.
Options contracts can be used for a huge multitude of different reasons, and gambling can be one of them. I’ll leave you with this: always be skeptical of those that claim you can get rich quick buying “just” options contracts. If you fall for that, you’ll likely end up no different than the investors of Poyais – empty-handed. We at The Technical Traders OTS teach methods that are not get-rich-quick and we do both selling and buying of options. Stay small and profit while minimizing risk is our goal.
Author: Chris Vermeulen