How I lost $500 in Options Trading
Written By: Nick Nguyen | Read full profile
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I was being stupid. It was that mini-rally around April. I had been watching stock patterns for a month and thought, “hey, I know what I’m doing, let’s up the ante and make some real money with options!”
Too bad, I didn’t really understand what options trading was really about yet. I mean, I knew the basics:
Buying a Call - means you think the stock will go up.
Buying a Put - means you think the stock will go down.
Selling a Call - means you think the stock will go down.
Selling a Put - means you think the stock will go up.
Each contract is worth 100 shares.
Easy right?
Wrong.
↬ What is paper trading?
↬ What not to do when trading options.
I pulled the trigger, and bought 2 call options for $CAKE (The Cheesecake Factory) and $MGM (MGM Resorts International). I saw the charts and there had just been a quick rally, so maybe...just maybe I’d be able to hop on before it was too late!
Well, no surprise, it was too late. I didn’t consider what would be a good price for the options and my technical analysis was really raw. Drawing support lines just wasn’t enough. So each day that went by, I watched as the time decay slaughtered the contract's value. I still regret not just closing the call option when I had only lost $50 dollars. Instead, I waited until the very end when they were close to expiration and ended up losing $500. In 2 weeks, I threw away 20% of my paycheck - ouch.
But it was a good lesson. Definitely an expensive one, but a good one nonetheless. It taught me how to cut my losses early on and not jump the gun and invest in anything I didn’t understand.
I mean I love The Cheesecake Factory, but not so much their stock nowadays.
If you’re interested in making money off of options, I’ve learned that selling calls and puts are less risky. Emphasis on the less. Do a lot of research, understand what’s going on, and realize that you will lose money - the question is how much will you lose?
But there are ways to practice without any risk for free! Check out my post on paper trading here!
*Nguyening Lifestyles is not a registered financial service provider and does not give financial advice. All information in these posts are for entertainment purposes only. Nguyening Lifestyles is not liable for any actions or outcomes that transpired after your reading of the following post.
