A Poker Players Guide to Investing in Options

Principles on risk-reward, expected value, opportunity cost and asymmetry.

Join our growing community of 34,000+ and enjoy a weekly dose of insightful and practical content that will empower you to achieve financial wellness and optimal health. It takes just a second to sign up, and it's completely free.

Principles of Poker

When I first began playing online poker back in high school, I entered into a $30 multi-table tournament with 600+ players. 12 hours later, I won, banking $2,600 in profit; a near 100x return in a single day!

While I couldn’t articulate it at the time, I learned firsthand the power of asymmetry. Sometimes the best investments are those where you risk a little, yet can win a lot.

This principle has always excited me about tournament poker. Naturally, however, MTTs come with more risk, as most of the time you lose your principle (do not “cash” or make the money).

The best players only make their money back some 20% of the time. When they do, however, the multiples can be huge. In short, risk comes with a price, but also a reward.

Cash games on the other hand are much more stable. One’s win frequency can be as high as 70%, yet the multiples are much lower.

A solid day on the cash tables may leave one with doubling or tripling their initial buy-in. Stability comes with a price, but also with lower returns.

Poker Applied to Investing

When I began investing my poker winnings, I was looking for instruments with asymmetry. Perhaps this is what excites me so much about opportunities like Bitcoin, which can now be purchased with the click of a few buttons in my brokerage account.

For the most part, investing in “spot” or the underlying asset is equivalent to playing cash games. You simply buy what you want to hold and chill.

What tournaments are to poker, options are to investing. An option gives you the right (but not the obligation) to buy or sell a stock at a future date for a future price of your choosing.

In exchange for doing so, you typically get leverage to the upside. The reason is that if the stock does not reach your desired price (called a “strike) by your chosen date, then it expires as worthless.

However, for each dollar that the option rises above your strike price, it is considered “in the money”, and you will typically earn multiples of the dollars you have invested.

For example, imagine you were to buy a call option on the S&P 500 (via SPY) for January 17th, 2025, and a strike price of 580.

As you can see from the chart above, if the index moves to $655 by the expiration date, you’d make a whopping 784% on your money. If you bought the index at today’s price of $513 and it moved to $655, you’d only make some 20% return.

As you can see, options are powerful if you play them right. However, like tournament poker, make one mistake and you go bust.

5 Things I Learned Trading Options

1. Play for the Asymmetry
   
   I’ll admit I’m probably unconventional when it comes to trading options. I’m not looking to make 10-20% on a short-term trade and flip it.
   
   I’m only interested in long-dated options where the multiples far exceed the risk. If a bet can’t at least do a 3x, I won’t consider it.

I have other parts of my portfolio in more conservative bets to allow me to take the risk.

2. Manage Risk
   

   I’m not betting the farm on any one option, just like I’m not overexposing myself to any one poker tournament. Although I’ve rarely held an option to expiry, I’m aware going in that I can lose every dollar I invest.
   
   I always manage my risk appropriately and only invest what I’m willing to ride to zero.
   

3. Hedge
   
   I like buying multiple contracts so that if I get an early move in my direction, I can sell one, cover my position, and freeroll with the rest.
   
   Eliminating my downside allows me to be more aggressive with the rest of my position, and realize my full upside potential.
   

4. Buy When Few Are Buying

The best investments are those where you bet against consensus and are correct. The hardest time to pull the trigger is often the most important time to do it.

When the market is bearish and screaming “We’re going lower”, it’s often a bottom signal and the time to buy!

5. Know When to Quit

Options are unique in how they trade. The further an option is in the money, the more exposure you have and the lower your risk-reward becomes.

In a poker game, if you buy in $1,000 with the potential to win $20,000, your risk-reward is 20:1.

However, if you turn that $1,000 into $10,000 you now have $10,000 at risk. Assuming your max upside is still a total of $20K, your risk-reward is now 1:1.

Such is the situation one finds themselves in when an option is deep in the money. While there is potentially still some expected value left in staying in the game (holding the option), these are my preferred times to quit.

Few ever regret locking up the win.

An Example of Trading Options

Those who follow me on X know that MicroStrategy ($MSTR) and Coinbase ($COIN) are some of my favorite options to play with. The reason is simple: they act as a leveraged play on Bitcoin. When Bitcoin goes up, these go up even more!

It’s no secret that these Bitcoin-related assets have performed very well over the past year, and the call options were up a ton (more than 1,000%)!

While I still believe they will continue to appreciate this cycle, as Bitcoin blazes past $100,000 per coin, I no longer wanted the exposure to the call option.

I could simply sell the option, take my profit, and then roll that into the stock itself. This would allow me to have exposure to the asset without the downside risk of the option expiring worthless.

Put another way, it was time to take chips off the table.

Conclusion

Trading options are high-risk, high-reward plays that mimic some of the elements of tournament poker. I love options as I’m a huge fan of finding asymmetric bets that can produce outsized returns.

That said, options come with a lot of risk and can often expire worthless. Be mindful if you are considering using them, and consider seeking professional counsel.

I hope this guide helped give you an overview of how options work and some of the fundamental strategies to implement if considering playing around with them.

Feel free to share your experience or drop me a line with any questions.

Good luck!
Alec