“Options are a double-edged sword; knowing the principles clearly does not mean you can use them well. If you go in the wrong direction or misjudge the timing, you can still lose money. In May, I invested a very small amount to buy Ethereum call options... and then when Ethereum rebounded to just over 2300, I made more than 100% profit, but ultimately it was just paper wealth. Subsequently, it plummeted and went to zero.”
This comment mentions several points that are easy traps to fall into when using derivatives.
“Misjudging the timing can also lead to losses.”
As long as you're using various tools for short-term price speculation instead of buying spot, it ultimately hinges on a fundamental judgment: determining when the market will move in the direction you anticipate in the short term.
To assess this short-term trend, in my understanding, there are only two methods: one is technical analysis, and the other is blind guessing combined with a bit of personal intuition.
We won't discuss blind guessing combined with personal intuition, as that is purely indescribable personal instinct, with no reasoning to discuss.
As for technical analysis, that depends on the individual. If you believe you can effectively use this method for a long time, then of course there's no issue.
But from my observation, very few people can achieve this; I certainly cannot.
As long as one can clearly recognize this issue, the vast majority of people won't need to dabble with various financial instruments anymore.
“In May, I invested a very small amount to buy Ethereum call options... and then when Ethereum rebounded to just over 2300, I made more than 100% profit.”
Here lies a contradiction encountered by many when operating various tools:
The method for controlling risk is to use only a very small amount of money to try.
Even if you incur losses, it won't be catastrophic; it’s just an experience purchased for yourself.
But if you make a profit, even if it’s not 100% but 10 times, the significance is quite limited due to the small principal involved.
If you truly regard that experience of making 10 times as your skill and then gamble with large amounts next time, you will be completely doomed.
Therefore, using small amounts won’t yield big profits, and using large amounts is gambling—if you can’t see through this contradiction, you will remain obsessed with various financial instruments, and that obsession will likely lead to a total loss for the majority of people.
I have experienced what this reader went through long ago; I spent a considerable amount of money learning this lesson before I fully woke up.
This pit may still need to be walked into for a better understanding; it’s hard to truly learn without bleeding or getting hurt.
As Mr. Buffett wisely said (in essence): while you are young, make all the mistakes you should make; the future will be smooth sailing.
Writing to this point, I am reminded of another interesting statement from him.
During an interview, a reporter asked him if he would choose to invest himself if he could live his life again.
His response (in essence) was:
No, he would work hard, save money, and then use all the savings to invest in the S&P 500 index, leaving the rest of the time to live well and enjoy life.
This answer seems plain but encapsulates the flavors of life.
Helping people invest is too worrisome and stressful; he sacrificed his own life for it.
He invested his entire life and only dared to compare his average returns with the S&P 500, being very satisfied and happy if he could outperform the S&P 500.
So given all this, if he could relive his life, he would rather simply invest in the S&P 500, enjoying both the steady appreciation of wealth and a happy personal life.
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