3 Nightmare Options Trading Stories
From $260K to $1,000 in under 1 month
Options trading is a high risk, high reward investing strategy. You can get incredible, life changing returns…but you can just as easily go broke.
While covered calls and cash secured puts are safer options investing strategies, some people assume a ton of risk either through buying options or selling uncovered options.
In the case of buying options, the investment can turn into $0 rather quickly. In the case of selling uncovered options, you can lose far more money than you invested.
Some people strike gold through those strategies, but there are plenty of horror stories of people who took it too far.
Many of these people buy options on a single stock with an approaching expiration date. Options can be a powerful addition to your investing strategy if used wisely…but don’t utilize it in the ways described in these 5 options trading nightmare stories.
#1: $200K+ Loss On Apple Calls
Several years before Apple’s stock split, one Reddit user went all in on AAPL calls with a $135 strike price. The $260,000 position initially brought forth fruit as Apple stock rose. After the 135 AAPL calls produced a profit, the Reddit user sold these calls and proceeded to go all-in on $140 strike price calls.
Unfortunately for this Reddit user, Apple stock and most of the market sold off due to news revolving around China. This user held onto the $140 calls almost until the end and emerged with $1,000 left.
#2: Poorly Timed Tesla Put Result In A 1-Day Loss Of 44.8%
I got wind of this trade through Bullish which covered a few Wall Street Bets trades that went spectacularly well or extraordinary south. One Reddit user bought Tesla puts at a bad time and saw a $13,720 loss one day later. Given the March 27th expiration date and knowing how Tesla performed after we reached the bottom of the March crash, this Reddit user likely sold the call and took further losses or saw it expire worthless.
#3: 99% Loss From Poorly Timed Amazon
Another poorly timed YOLO but this time on Amazon options. The Market Watch article details how after success with Netflix puts, this investor decided to give it another try with Amazon and their S&P 500 for further increases.
Unfortunately, the timing didn’t work out and a $30K portfolio turned into $4.81.
What’s The Takeaway?
Buying options is a gamble. You hope that the stock price will move the way you want it to move. There are ways to hedge with options when you want to protect yourself from downside.
However, most people who buy options don’t do so to hedge. They look for extra appreciation that would crush the average market return. While some options traders strike it rich in a few months, stories like these are just as prevalent and reflect the risky nature of buying options.
If you want to buy options, I’d recommend doing so with less than 1% of your portfolio. In other words, most people shouldn’t be buying options.
Selling covered calls and cash secured puts are less risky ways to get into options trading but still carry some risks you don’t see in typical investments.
Before you buy another option or think about getting started, keep these stories in mind. They’re not meant to discourage you. Rather, they show what can happen when people get greedy with a risky investment vehicle.