Just curious after reading a big headline about debt invested into the market....
Not trying to call anyone out on this as I really don't know the answer. What they mean by debt is money borrowed to invest in the stock market....now I do understand 'shorting' basically requires this process but how about straight out investing. Do many think that money is actually being borrowed to establish a 'long' position...I mean the average Joe? I've never done that and I can't imagine those but with the biggest brass ones imaginable even daring to do that.
A traditional long position is one that requires using an individuals capital to invest without being paid an interest rate for the investment. A CALL option is when you borrow shares using a margin account and paying an unregulated interest rate to exercise this privelage. Both the traditional long position and Call option trader make money when the stock price increases, other than interest paid the other difference is that the traditional long makes money from day one assuming the stock price goes up, on the other hand the CALL option trader must wait for the strike price to be achieved before they see one cent of profit (of which they must split with the brokerage firm 50/50).
From what I understand regarding options trading, one must have a margin account to trade an option in a stock. With that being said, I cannot understand why someone would engage in a CALL option ( betting that a stock would rise in price) rather than just making a long investment in the stock. They have the money, just take it out of the margin account, no? The long position does not cost any interest, but the CALL option does. Seems to me that people are borrowing money when they don't need too.
The conclusion that I come up with is that options trading is a suckers bet. Here is another comparison, traditional long investors pay their credit card debt of each month and the credit card companies make nothing of of them, the options trading carry a balance from month to month and eventually drown in debt (but the credit card companies/brokerage firms love them). Fellow longs please correct me if I am wrong. Regards LT