Warning: this is no place for Boomers
When I got my $1200 stimulus check, in April 2020, I spent $100 on new shoes, I put $600 towards paying off my car, and the remaining $500 into Robinhood.
I have dabbled in trading over the past 5 years, mostly in big stocks and safe bets. But I never really seemed to make enough money to be satisfied.
I mean earning 10 percent is a great return on investment (ROI), but in reality, if like me, you have $500 in play then you are only earning $50 on your investment…per year.
It didn’t take long for me to realize that in order to make real money on common stocks you had to start with money, to begin with. The rich get richer right?
I knew there had to be a better way.
Enter options trading.
Options trading, power in numbers
If you have never heard of options there are a ton of resources available to become better informed.
In a nutshell, there are four things to know about options contracts:
- Each contract represents 100 shares of the stock.
- Each contract has an expiration date, after the date you have the right but not the obligation to buy the stock at the strike price (see below).
- Each contract has a strike price, this is the price that the stock must reach before expiring if you want to purchase the shares.
- Contracts can be traded prior to expiring, this is what many people do to lock in profit.
Essentially, buying options contracts gives you the potential of leveraging your money in a way that buying shares simply cannot because you are purchasing 100 shares for, potentially, much less money than 100 shares would cost normally.
However, there is a tremendous risk here because if your option does not reach the strike price, and it expires, you are shit out of luck and walk home losing 100% of your investment.
I cannot remember exactly how I stumbled across options. I think I was doing some research on how to maximize my investment or some shit like that.
Who knows.
The point is, I found it.
And best of all Robinhood made signing up for options super easy, and since I had been on the platform for so long and had a decent understanding of trading with a small portfolio, I was granted access to options easily.
I dipped my foot into options slowly at first. Buying one contract and selling it within a day after it lost 50% in 2 hours.
"Oh no! What the heck?" I thought.
But I decided to try a couple of more times. Each time learning a bit more about how options trading worked. This process took a couple of months and I started to notice how much large-scale events could impact the price of options.
I had done modestly well over the summer, earning $300 dollars so I was now sitting at $800 total.
A 60% ROI, not bad for just 3 months of work.
But now I was not satisfied. I wanted big-time cash.
Enter: Wallstreetbets
Part of my daily trading routine was trying to keep up with the latest news on the Yahoo finance pages for each stock (ahh…the good old days).
One of the stocks I was looking at was PLUG, and on that board, they kept using an acronym that I wasn’t familiar with: WSB.
I did a quick Google search and ended up finding a new home: Wallstreetbets.
If you haven’t been there, it is a center for depravity (proudly so) and became world-famous after Gamestop (GME) took off after a Reddit member, DFV, predicted a short squeeze.
The cool thing about WSB is that it is home to alternative thinkers who dig deep into stocks that nobody is talking about. WSB also prides itself on making YOLO stock trades, or You Only Live Once.
This spoke to me.
It was certainly not for Boomers.
And people post gains and losses called gain porn and loss porn. I saw people investing less than a grand and ending up with money that could pay off my mortgage, within a year too not over decades.
This is the way, I thought.
So I did some research on WSB and kept seeing posts about Workhorse (WKHS), a small EV company that targeted delivery trucks rather than personal vehicles. WKHS also was due to get news about a potential government contract around mail delivery vehicles.
I pulled the trigger.
I put my $800 into Workhorse options, 35 of them, well out of the money.
Within a couple of weeks, WKHS had taken off. My investment was now worth $6,000 before the contract had even been awarded.
Not bad! I thought, Just imagine where it will be after the contract.
However, the contract didn’t come. One afternoon I checked my Robinhood feed and saw that Workhorse had tanked. The contract had been pushed back. The next day I opened my account up to see that my options were back to $500, the same as when I had started. I had lost $5,500 overnight, and there was nothing I could do to stop it (I could have hedged, but that is not the WSB way…).
Oh well, there was nothing I could do except to find the next big gainer. So I began thinking about major upcoming events and it hit me…
…the election.
Weed and the 2020 election
The election was a couple of weeks away and I was almost 100% certain that Biden would be elected president.
What I wasn’t so sure of was which arena to invest in if he did win.
Electric Vehicles?
Guns?
Solar panels?
These were all good options, but I had to pick the one with the most volatility…weed.
A Biden win would be an almost certain bump to weed stocks and weed stocks and options were relatively cheap.
However, this time I had a plan.
I had settled on Aurora Cannabis (ACB) because it had the highest short percentage (folks betting against it) and the highest volatility, meaning if it popped, it would REALLY pop.
I also had decided to wait until Tuesday before the election to get in and I would buy the options that expired on Friday, getting them for as cheap as possible.
I ended up buying 126 contracts for just over $600, or $5 per contract. That meant I had 12,600 shares at $0.05 per share. The strike price was $7.50 and the stock was sitting around $4.50 or so.
Locked and loaded.
Election day came and it was not certain that Joe would be president, the stock tanked throughout the day. However, as the picture got rosier for Biden on Thursday the stock began to rise. In a panic, I sold the shares for $1,200 a 100% gain in one day.
I figured it was better to take profit.
I was wrong.
On Friday the stock soared around $10 a share, meaning I had leftover $50,000 on the table.
This is the options potential I had been seeking, it was possible if I had the guts to simply hold.
Again, back to the drawing board.
Vaccine approval takes me to the moon
Now armed a bit more cash I had another target.
Moderna (MRNA).
The vaccine was approaching approval and it would be releasing results from studies at any minute.
I went all-in with options at various levels all with the expiration date of 12/18.
And from late November into early December, MRNA took off like a rocket.
My $1,200 took an initial dip, but then ripped to over $12,000. All of this with another 2 weeks before the expiration date.
Like a fool, I didn’t take profits.
Within a few days, the stock had pulled back and so had my account value. Back down to a measly $2,000.
Not bad, still, but not great.
Unfortunately, over the next few months, I walked away from options, I needed to clear my head and develop a new strategy. My timing, as usual, couldn’t have been worse as I missed the whole Gamestop squeeze. However, it wasn’t a total bust, I did learn a lot from this wild ride.
Lessons learned
This was a fun roller coaster, and I learned a ton while making some cash.
- Timing the market is tough. Even seasoned pros cannot do this. Options make it tougher because you have a finite amount of time to make your mark.
- Options can take you to the moon. This may be one of the greatest ways to take some fun, spending money (folding cash), and make a bet that changes your life.
- Total loss is a real possibility. With options I am going to be sticking to only gambling what I can afford, and make no mistake, it is gambling.
- More often than not, I made good picks. My picks almost all did go up, my issue was timing, not the stock itself. This is probably a sign that I should just buy shares.
Disclaimer: None of this is financial advice. Do your own due diligence, I simply wished to share my story.