The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again at optionalpha.com and welcome back to the daily call. Today, we’re going to be talking about how loss aversion and behavioral finance applies to options traders. What is loss aversion when it comes to behavioral finance? It’s this idea that we, as humans and investors, we value gains, but we only value gains a little bit compared to losses, meaning that the pain of a loss is significantly more than the pleasure or than the gratification that we get through having a gain. If you look at a simple concept of say – You are given $50. You might think to yourself, “Okay. That's awesome. I'm given $50.” But if I give you $100 and then I take $50 away from you, that pain of taking away that $50 after you had $100, even though you're left with the same $50… Instantly in the same moment, I just give you $100 and take $50 away, the pain of losing that $50 is way greater, sometimes two or three times greater than the pleasure that you got from getting the original $50, even though y