The asset class that acts most like a lotto ticket

G

garchbrooks

Just curious what people think. If I wanted a lottery ticket to riches through the market, is my best bet options? The state lotto here ran a recent promotion with 1 in 952 odds. The expectation on each ticket was negative 10 dollars.

If I were willing to pay a tiny tax in the form of a loss for a lotto ticket in the market, options would have to be the best way to go, right? Just long some cheap out of the money call or put?
 
Actually, say I wanted to compete with the state lottery legally. Could I setup some compliant options operation and decorate each call with a "game" and sell options contracts, where I give a percentage of the payout back to the ticket player?

So say I sold you a ticket with a leprechaun on it, said it was a lotto ticket, but really it was a proxy for an option in the market. If the option rises, I take some of the profit and pay it back to the leprechaun-ticket holder. Technically, I'd be like a money management service, but I'd also be running a legal lottery operation that's in competition with the state.

Is this workable under our current legal system, because I'd love to run my own lottery.
 
Quote from garchbrooks:

Just curious what people think. If I wanted a lottery ticket to riches through the market, is my best bet options? The state lotto here ran a recent promotion with 1 in 952 odds. The expectation on each ticket was negative 10 dollars.

If I were willing to pay a tiny tax in the form of a loss for a lotto ticket in the market, options would have to be the best way to go, right? Just long some cheap out of the money call or put?
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Going long on far out of the money options is indeed very much like buying lottery tickets. The expectation is negative, just like for lottery tickets, but usually not quite so bad as the lottery tickets.
 
OTM butterflies are even better because they can be cheaper than an outright option purchase and have a very high reward:risk.
 
Quote from rew:

Going long on far out of the money options is indeed very much like buying lottery tickets. The expectation is negative, just like for lottery tickets, but usually not quite so bad as the lottery tickets.
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All the more reason to attach a lotto ticket front to the options contract, right? You can become a defacto market maker, collect a small spread for the pretty print on the ticket and the marketing, but then really buy your client an options contract.

You collect a free spread, provide a gaming service, and then put the PnL onto a computer web site and let people check to see if their ticket is a winner.
 
Well, there is a huge difference. You control the timing of buying out of the money options based on underline information where the lottery controls the timing you buy tickets and you do that based on no underline information.
 
Quote from garchbrooks:

Actually, say I wanted to compete with the state lottery legally. Could I setup some compliant options operation and decorate each call with a "game" and sell options contracts, where I give a percentage of the payout back to the ticket player?

So say I sold you a ticket with a leprechaun on it, said it was a lotto ticket, but really it was a proxy for an option in the market. If the option rises, I take some of the profit and pay it back to the leprechaun-ticket holder. Technically, I'd be like a money management service, but I'd also be running a legal lottery operation that's in competition with the state.

Is this workable under our current legal system, because I'd love to run my own lottery.
More...

That's a pretty original idea- I do like how you think. Even though your 'options-lotto' customers could be getting better odds with you than with the state lottery, the bottom line is that I highly doubt your idea would be legally possible because there are stacks of disclosure/suitability forms that have to be filled out and signed at any brokerage firm before they let you trade options.
 
The expectation on all options trades is around zero. So many people here, including some of the pros, do not understand what expected value is.
 
The sector that I would say exhibits the most uncertainty is biotech. Those stocks gap up or down 40%+ with a frequency no other sector approaches. An example over the last 2 or 3 years is DNDN, and there are plenty more biotechs doing similar crazy stuff.
 
This is probably the dumbest thread I've ever come across on this site. No you can not start your own lottery. It's called a numbers racket.

This idea is neither original, clever or legal.
 
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