I wonder could it be possible that we're experiencing a new kind of bubble caused by the confusing data from all the amateurs entering the market and causing the ML algorithms to think that things are amazing. The real world surely doesn't look amazing at the moment.
I once sat down to a $2/$4 limit poker game in Vegas. The limit was so low that you knew a maxed pot was unlikely to ever bankrupt you. It’s meant to be for amateurs without much cash for gambling (me).
Some guy at the table had figured out that with enough cash you can just max every bet and let the odds dictate his results. Because other players were folding based on the quality of their hand, they were missing opportunities to hit on the river which he got. This devolved the game from reading your opponent to reading the inherent odds of card hits.
It’s not the exact same game, but when I think about the market being irrational, I think about that guy. He made the game inherently irrational. EDIT: or, at least, he played it irrationally, causing the usual signals to be removed from play.
The table beat him, but since he forced the game into playing the odds, the only effective strategy was to play conservatively. There was no point in trying to read his hand or bluff him.
I was under the impression that reading hands was amateur. You should be playing the expected value of hands. If you do that you will fold often but get huge payouts from that guy when you have something playable.
Most of the amateurs go after the big safe bet - and that is Google, Amazon, Netflix, Facebook, Apple and Tesla. The first five can't lose much in value, people are buying their services like crazy (especially Amazon and Netflix given that 'rona blocks their physical counterparts and it looks like this is gonna be a long wait until 'rona is over) and they are enjoying generally wide margins (especially Apple).
Tesla is a bit more of a risky bet, but they sell actual cars, and by far have more expertise in electric vehicles than all their competition combined, dito for their automated driving.
Every other stock? Phew. They're all in for a ride... if I were to guess I'd bet on food-related brands to stay relatively safe as people still do need to eat, but everything related to travel and heavy industry has a really scary future ahead due to 'rona plus environmental concerns.
I’m not sure what OTM has to do with anything and theta is certainly not the driver here most of the time (except at expiry when theta decay drives hedging).
This is gamma. Pure and simple. The double edged sword of convexity.
The user I quoted claimed amateurs aren't going to lose money chasing FAANG hype, which is arguably reasonable if they're holding the underlying or even buying ITM options, but they seemed to forget that a lot of retail traders are burning money on OTM options that will most likely got to zero.
