Miles Putnam, CFA® | Feb 02, 2026

Stocks are the only thing people want more of when their price goes up. Bull markets stoke confidence. People chase the winners. More participation adds fuel to the rally, and the bull market builds on itself.

There is nothing irrational about wanting to participate in a rising market. The problem is that no alarm sounds when prices enter extreme territory. Eventually, inevitably, prices swing to the opposite extreme. Then, as the saying goes, when the tide goes out we find out who has been swimming naked. Who had a coherent investing plan, and who was just splashing around gambling?

Investing and gambling summon different images in our minds. Investors are smart, organized, and disciplined, foregoing pleasures today for greater security and opportunity tomorrow. Gamblers are the opposite, greedy for a quick buck and too impatient to earn it honestly. Investors are Mr. Monopoly, complete with top hat. Gamblers are Krusty the Clown from The Simpsons, who lost all his money betting against the Harlem Globetrotters because he thought the Washington Generals were due. Yet the line between investing and gambling can be surprisingly hazy. We want to behave like investors rather than gamblers, but perhaps we’re destined to struggle because it is a false dichotomy.

Consider the similarities. The root goal is largely the same–to turn a pile of money into a bigger pile of money. Both involve uncertainty and the risk of loss. Both can produce exciting payoffs. Who is to say where one ends and the other begins?

As with so many things, attitudes have relaxed over time. Once, only the safest bonds were popularly considered sound investments. Bond market terminology still reflects that old idea. Only the highest-quality and therefore lowest-yielding bonds earn the title of “investment grade,” while bonds with even a single-digit chance of default are called “speculative grade” or “junk.” The market knows better and pays similar prices for good speculative grade bonds as it pays for investment grade bonds, as investors understand that a diversified portfolio of “speculative” bonds behaves very similarly to investment grade bonds most of the time. The difference between the best and the rest is not nearly as stark as the vocabulary implies.

And then there are changing views toward the stock market. Today we consider the stock market a core pillar of most investment portfolios. Broadly speaking, however, stocks have a very checkered history, from the South Sea Bubble’s crash in 1720 through 1929 and the ensuing Great Depression. At one time, any stocks besides utilities and railroads were considered speculative. The modern U.S. stock market is much improved–the rough equivalent of modern medicine compared to ancient medicine–yet the same destabilizing emotions of greed and fear remain as prevalent as ever.

Flash forward to the twenty-first century and the rise of the day trader. Is day trading inherently gambling? What if you consider your day trading options activity as one component of a broader investment strategy? What if you do it with options? What if you’ve done well–do the results affect how we judge the actions? We have our own common sense to determine what’s reasonable and what isn’t, but financial markets don’t always respect common sense.

Markets are becoming more casino-like all the time. Riskier activities keep getting reclassified as new forms of investment. People are constantly being nudged to venture into riskier territory. There now exist hundreds of exchange-traded instruments that use borrowing to provide additional exposure, i.e. leverage, to indices, countries, or single stocks. When a stock gets really hot, inevitably a wave of leveraged funds comes along to let people up the stakes. Why buy boring old NVIDIA shares when you can buy the GraniteShares 2x Long NVDA Daily ETF which promises to return double the daily change in NVIDIA’s share price, up or down? Not every hot stock endures like NVIDIA has. Sometimes a stock goes cold before the regulatory apparatus permits leveraged funds to get off the ground. I’m amused by the long and growing list of leveraged funds designed to give exposure to stocks that nobody cares much about anymore. I’m not sure what happens to these zombie products. Presumably they eventually shut down when the day-to-day trading activity drops below a critical level.

Options trading has reached astonishing levels, with 2025 activity up 22%, setting a sixth consecutive annual record. Options can produce even riskier outcomes than leveraged funds. They also generate higher fees for brokers. Options can be used defensively, but the vast majority are being traded to increase risk, not decrease it. According to Barry Elad at CoinLaw (coinlaw.io), the majority of retail option trades represent just a one-day gamble. Yes, one can trade options that expire the same day. Investors old enough to recall the rise and subsequent fall of the hyperactive dot-com day trader might look back at those days as an age of innocence. Today’s trading addicts have access to much stronger drugs.

I should stop for a minute and concede some points to the risk takers. For one, asset prices tend to rise over time meaning, unlike the casino, Wall Street’s players and house can both win simultaneously. If the player expects to make money, then doesn’t it make sense to play the game as hard as possible to benefit as much as possible from the fact that prices tend to rise over time?

Furthermore, the market will drag every investor into unintentional gambles on a regular basis. For example, people buy gold and silver for the simplicity and age-old desirability of precious metals. You buy it to hide it and forget about it.

What if that was your plan, but then gold doubled in short order, as it has? Silver tripled in 2025. Now the precious metals investor has two or three times as much cash value hidden away as originally intended. They could dig up half and sell it, but they probably don’t want to. Doesn’t that failure to act constitute a gamble of sorts? Seems like it to me. By doing nothing, the precious metals investor is playing somewhat the same game as the daily option trader.

In the end, I don’t think we can reliably distinguish between investing versus gambling. What clearly looks like one will contain surprising elements of the other. Where the gray area gets really dangerous is that financial markets embolden people to take enormous gambles under the false auspice of “investing.” Certain investment products, combined with certain behaviors, are almost certain to generate life-changing financial losses. Somebody who would never dream of betting $1,000 on a hand of blackjack might accept a $10,000 options trading loss in stride as simply a bad investment. String a few of those losses together, and you’re talking serious money. In a sense, the admitted gamblers are perhaps more honest with themselves than investors are. And when the tide goes out, the naked swimmers might be the last ones to see who they really are.