We check in on the WallStreetBets crowd from time to time. We find it interesting how they celebrate their losers, not just their winners.
We ran across an interesting post on Reddit. This person bought call options on American Airlines that expired on August 20 with a strike price of $22.00. The stock ended the week’s trading at $18.50. so the options expired worthlessly.
People buy put and call options all the time, and they expire worthlessly quite often. This event is not a big deal because the typical retail investor may trade 1 to 10 of them at a time. We would hope people would limit any one investment or speculation to a small fraction of their portfolio. When you trade small, losers do not cause any real damage.
But this trade caught our attention. This person bet the ranch for a reason that is unknown to us. They bought 1,161 calls at $1.33. These options had a total cost of $153,934.24. The timing of the purchase is uncertain.
This approach of taking one huge position is no way to trade options. It might be fun and exciting when you are on a hot streak, and you win, but if you play this game long enough, you will lose it all. That is probably what happened to this person. Oh by the way, it appears that this is not this persons only loss. They stated they were down over $500,000 since June. If I had to guess, this person is a male, 20 something years of age. Reading their post, they do not seem particularly upset about the loss. It’s almost like a badge of honor. The WallStreetBets cloud is a unique bunch to say the least.
A good options trader will trade small and take educate and calculated risks. Do some homework and structure a trade that is consistent with your thesis. Properly done, one should make 5% to 20% in any rolling 12 months period, and drawdowns should be reasonably small.
