From TBSP to WSB

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Back in the late 1980s, when I first developed a strong interest in trading, I subscribed to a newspaper that’s still around today: Investor’s Business Daily. In that paper, without fail, would appear a full-page ad from a company that I don’t think is around anymore called The Better Software People (or, as they called themselves, T.B.S.P.).

The message TBSP wanted to convey was simplicity itself: buy our software, and you will get options trade signals that will make you rich. About 95% of the ad was just row after row of trades, starting with something like $10,000, which steadily grew to literally hundreds of millions of dollars. These people, with a straight face, retroactively picked all the perfect trades and convinced some poor saps that a small account could, in a few years, grow to hundreds of millions of dollars. Self-evidently, they must have sold enough software to pay for these expensive ads year after year.

Well, TBSP has morphed into something new, WSB, which isn’t expensive software, but is a free website. More specifically, it’s a sub-reddit which I’m sure almost all of you know about, and some of you probably attend frequently. A year ago, hardly anyone went there. These days, thanks to the free money the government has handed out to the entire population (a portion of which discovered options trading), a full 1.6 million self-described degenerates (or “autists” or “retards”, depending on whom you ask) inhabit the place. It’s one of the biggest financial destinations on the web.

The reason I bring this up is that the site has become a modern-day Siren from the myths of Ancient Greece. Sirens “were dangerous creatures, who lured nearby sailors with their enchanting music and singing voices to shipwreck on the rocky coast of their island.” These days, A Siren looks like this:

They call it “gain porn“. It’s basically guys who tend to:

  1. Focus on just a handful of “meme” stocks like TSLA, PLTR, ZM, etc.;
  2. Buy very short-dated, out-of-the-money call options (typically something which expires on Friday of the same week);
  3. Put most or all of their capital into one or two very high-risk plays (as they say, a YOLO trade);
  4. Luck out repeatedly and grow their small account many hundreds of percent, invoking the envy of all the other readers on the site

It all goes back to the mental exercise where you take 1000 people flipping a coin, and everyone who gets “heads” is a winner and gets to play again. So 1000 becomes about 500, then 500 becomes about 250, and 250 becomes about 125, and on and on, until you get the 1 guy who, for some crazy, unrepeatable reason, managed to get “heads” ten times in a row.

Now, anyone observing this very boring game wouldn’t think much of the “winner”, since it was all just dumb luck. However, he might decide to write a book called Ten Heads in a Row, maybe appear on Oprah, perhaps even do a nationwide book tour and talk about his incredible experience. But, let’s face it, somebody was going to get a statistically unlikely string of outcomes, and the same fellow would almost certainly not repeat the same results if you put him back into a group of 1,000 coin-flippers once more.

And yet the chap’s equity curve above is enough to excite many people, some of whom really don’t have the cash to spare, into the same kind of high-risk, high-reward, very-low-probability-of-success behavior. Thus you get this…………

……..and this………

……..and this…………

………and this:

Sometimes people go all-in on just one meme stock, such as Palantir, which has been the absolute obsession of these guys lately:

Whereas others think they’ll be clever and “diversify” by putting equal amounts into a wide variety of meme stocks:

The amazing thing is that this “loss porn” is in the midst of an insanely-supported bull market which is making record highs day after day after day.

And yet, given the properties of their trades, these “traders” are counting on the stock in question not just to go UP, but to go UP A LOT, and to do so RIGHT NOW, because otherwise these short-dated OTM options will swiftly move to $0.

Palantir, for instance, has slipped lower the the past four days (by about 30%, in fact), and although for a long-term stock investor this is hardly even a blip, for these WSB guys, it means a 99% loss unless the thing magically goes roaring higher in the next day or two. One glance at WSB last Friday (at which time every single post, and I mean every single one, on the home page was about PLTR) would have convinced you that, right now, there are countless traders who have gone “all in” on this thing who are about to see their accounts zeroed out.

So, be it TBSP or WSB, nothing has changed except the ability of a lot more people losing a lot more money a lot more quickly by chasing the dream of easy millions in profits for the taking. At least one of the chaps in WSB seems to know the real deal:l