Tech
Why This Popular Trading Strategy Is So Risky
In 2021, options activity hit a record high, with nearly 9.9 billion contracts traded. That was more than 32 percent higher than the previous record set in 2020. This increase in volume can be traced back to the meme stock mania as millions of new investors jumped into the stock market during the pandemic. Options trading is a popular strategy among institutional investors to hedge their risk in the markets, but if it’s not executed carefully, it can lead to devastating losses. Watch the video above to learn how options trading took off and why the strategy can be so risky.
“The idea that I used social media to promote GameStop stock to unwitting investors and influence the market is preposterous,” Keith Gill told Congress.
Gill — who goes by DeepF——Value on Reddit and Roaring Kitty on YouTube — testified in front of the U.S. House of Representatives’ Committee on Financial Services in February 2021. He became an influential figure online and is credited with helping inspire the epic GameStop short squeeze. Gill would screenshot his investment portfolio, showing his winnings from his GameStop position.
A lot of Gill’s portfolio consisted of what are called options contracts.
Options are an investment strategy that gives a trader the right to buy or sell a security.
“It’s best to think of options as an insurance product,” said Chris Murphy, co-head of derivative strategy at Susquehanna Financial Group.
Over the past two years, options have become increasingly popular among individual investors using brokerage platforms such as Robinhood.
“Twenty years ago, if you wanted to trade an option, you needed to maybe call up a broker on the phone, you needed to pay a significantly high amount of commission,” Murphy said. “So there’s much easier access to options markets, and the use of options has pretty much just grown alongside of that.”
If used properly, options can be a good way to hedge risk. But they can also be risky.
“Options are the kinds of bets where you can lose everything,” said Joshua Mitts, associate professor of law at Columbia Law School. “Unlike a share of stock, where you might see your portfolio go down by 5[%] or 10% in value, when you buy and sell options, you can lose all of your money.”
“[Options] in and of themselves are not bad tools,” said JJ Kinahan, chief market strategist at TD Ameritrade. “Fire is a wonderful tool. If you don’t know how to use it, it’s going to end poorly.”
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Why This Popular Trading Strategy Is So Risky
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Chinese companies are using prefabricated construction to build data centers faster and more efficiently. As America’s AI-driven data center boom accelerates, China’s BrightRay hopes to win U.S. business with its modular approach. But growing U.S.-China tensions, national-security concerns and restrictions on some Chinese-made products could limit that opportunity. CNBC’s China Bureau Chief Eunice Yoon reports.
Chapters:
0:00 Introduction
1:39 Chapter 1 – Prefabricated data centers
4:48 Chapter 2 – China’s focus on the U.S. market
8:20 Chapter 3 – Public vs. government reactions
Reporting by: Eunice Yoon
Produced by: Natalie Rice
Editing by: Darren Geeter
Animation: Jason Reginato
Senior Managing Producer: Tala Hadavi
Additional Footage: Getty Images, BRIGHTRAY
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Inside China’s Race To Build The World’s Data Centers
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With thousands of YouTube creators relying on the platform for income, many are turning to strategists as essential advisors on how to keep videos viral.
Meet the YouTube whisperers, a booming class of advisors behind MrBeast and other million-dollar channels.
Find the full report in related video.
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Two years after Elon Musk made Greater Memphis the center of his artificial intelligence ambitions, building data centers and energy infrastructure at breakneck speed, residents are grappling with unwanted effects, including noise and emissions from the natural gas-burning turbines.
Now, public opposition to the SpaceXAI sites, known as Colossus and Colossus II, is providing a blueprint for other communities across the country opposed to AI developments.
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Watch an unboxing of the TCL Roku TV. The panel is an edge-lit LED, 1080p, 120Hz refresh rate. The TV has 3 HDMI ports, component hookups, dual-band Wi-Fi, and Dolby audio processing.
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TCL Roku TV Unboxing | CNBC
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Red Hat reported recently and the market didn’t care for its earnings. Jim Cramer spoke with the CEO to find out if that, plus the Brexit sell-off could be creating an opportunity
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Red Hat CEO: Tech Opportunity? | Mad Money | CNBC
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