They are absolutely not stupid. Everything they're doing is entirely rational. It doesn't seem that way, because clearly you're not in the same circumstances as they are. Neither am I.
However, I completely understand it. If you're 22-25, not married, and have far more liabilities than asset, you have no reason not to trade on high margin with an options play and try to turn $50,000 into $2 million or more.
If you lose the $50,000, you can recover. If you end up horribly in debt, you file for bankruptcy and move on.
Given the current state of affairs, its completely understandable.
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