I Lost $1000 Trading Options
The “one-year” (AKA nearly two-year-ish) post-mortem of “I set aside $1000 to learn options trading”
***UPDATE February 26th, 2021: I’m back in the game! So to speak. I’ve recently been using “the wheel” trading strategy, where you continually write options (starting with a put, typically) to earn premiums on companies you perhaps would like to own stock in anyway, even if the trade goes against you. I built a market-wide options screener, The Wheel Screener, which can be accessed here:
Full disclosure: It’s been 100% built by me, and to unlock the full options dataset you’ll need to subscribe to a premium plan for $5 / month. And again, none of the info on wheelscreener.com is professional advice.
This is the final part of this series. The first part is here. The overview of posts in the series is here.
So, I’m behind.
Really, really behind.
This draft was supposed to be posted on the exact 1 year anniversary of my first post, “I Set Aside $1000 to Learn Options Trading”.
Yep, that would have been on March 26th, 2019. Ha.
Anyway, Let’s see how it went!
Things were going well. Until they weren’t.
My account profits were hovering around $1500, already achieving my self-set goal of gaining or losing $1000. Verticals in Twitter, Netflix, and others were all going smoothly. Then starting in September 2018, the S&P decided to do this:
Why didn’t I cash out!? Mainly because I didn’t follow my own advice that I had written myself in Part 1! I cast my losses aside and doubled down in SNAP, as I was feeling negative about the overall market, and it looked like SNAP would be one of the biggest losers. Of course SNAP decided to rally. (Honestly, based on the business model and number, I still don’t understand its price to this day. I suppose only time will tell.)
So I lost it all.
Okay, technically not all — I think I cashed my account with about $500 remaining.
Being the wonderful, law-abiding citizen that I am, I of course did my taxes for 2018. So let’s look at my Tastyworks 1099 document figure for net gain/loss:
Ouch.
Yep. Big time fail. That seems to remind me of a certain picture…
My Move Away from Options
To tell you the truth, I’ve been out of options since November 2018. Options trading is so sensitive to swings in the market like that (duh, 100x leverage, 100x more sensitive). This is exactly what everyone is talking about when “one trade can blow up your account”!
Additionally, I was spending at least 1–2 hours a day studying plays to make and managing my account. 1–2 hours a day all for just an extra $1000? I don’t know about you, but there are probably other activities I can focus on that I will profit from (and not just in a monetary sense) in the long run.
So, in summary:
Options trading is fun and exciting (to a point), but only truly lucrative if you have huge amounts of time to spend, can handle your emotions (my moment of weakness ruined me), and don’t do stupid things like doubling down or trying to immediately get your losses back (also something I FAILED at).
My Move Towards Index Funds — And Justification Thereof
Obviously there will be exceptions with options (Yes, I’m talking to you, /r/wallstreetbets), but being now 4 years in and out of the investment game, I think I can safely make an argument and contrast what the traditional “boring” index fund / ETF / standard stock investing looks like over the same period.
Here’s a screenshot of my year-to-date VOO (Vanguard S&P ETF), which I’ve also been accumulating monthly (or have been trying to):
Huh. 11.90%. Not bad. Just a bit better than my option returns. (As in, ACTUALLY positive!)
To be fair, this is NOT normal S&P behavior, at least on a year over year historical basis — the typically quoted figure is around 7% on average — we’ve hit 1.5 times that rate, and if the market really rallies in Q4 — we may see a whopping 2 times that rate, 14%!
Lifting All Boats
Regardless of those year-to-year averages, realize that no matter what average you’d like to settle on, they are all percentage values. This means that markets move on a logarithm scale and not a linear one over longer time scales, against what many may initially presume.
This has a lot to do with the ideas behind ‘a rising tide lifts all boats’, and not just in a stock market sense. Its also based in a global market sense — global trends that have been compiling on top of themselves essentially since the industrial revolution started. If you’re still skeptical, these numbers aren't just Wall Street contrived tricks in which they ‘somehow’ continually force the market upward each year — companies in 2017, 2018, and 2019 have continually published record-setting earning reports. Memorable recent examples include Apple, Microsoft, and Amazon — though with digging you can find more examples for all sorts of companies.
I understand the rhetoric (and sometimes even anger) against these huge, “non-tax- or no-tax-paying” companies. But consider what is happening in the economy on a second order. What does it really mean that Amazon has recorded record profits? It means that millions of people have the extra cash to buy stuff from Amazon. And Microsoft? Hundreds of thousands of companies can leverage cloud infrastructure and services to in turn provide better services for their customers. What about Apple? Consumers cannot only afford whatever is being sold on Amazon, but also high-end (okay, say what you want about quality, at least expensive) laptops and other gadgets from Apple.
Outlooks Are Good (Even Including the Next Recession)
Considering this analysis, as well as the fact that we are living through the most prosperous times in human history, I think the future long to very long (20–30 years) global economic outlook is very positive. With that said, at recent market paces, I think some sort of global market correction or even recession is inevitable within the next 5–10 years. We’re still in the longest bull run in stock market history. Although there are maybe some initial warning signs with the Federal Reserve decreasing its rates (and IF there is a recession, there are some downright scary challenges that could arise with negative interest rates that exist in lots of parts of the world today) there is currently no convincing story — to me at least — for an impending crash or recession (as some have been calling for in about the last 4–5 years).
However, that still does not derail me from my opinion that indexes like the S&P will be trading at least double their current prices they are today in 20–30 years.
Still not convinced of magical index funds? Here is the total return of VOO over the last five years:
Just “Popular Wisdom?” Maybe Not.
It would appear that the “popular wisdom” of long-time supporters of index funds such as John Bogle, Mr. Money Mustache, and even Jim Cramer, might be just a bit more than popular wisdom!
Heck, it might not even be any kind of wisdom.
It might just be a fact.
They might just be right.
-Chris
Repeating disclaimer: Chris is not a financial advisor in any sense. He’s just a big nerd that reads a lot and finds the markets fascinating. You should always inform yourself about all this stuff and then make your own decisions!
