I'm having a terrible day, I've lost a ton of money in options. I'm completely confused.. yet I had to chuckle at the gif posted in the comments section on the SC tweet. These days will come and go. Our thesis is stronger than ever. I think I'm going to grab some food, pretend the market doesn't exist for an hour and hopefully come back thinking a little more clearly. GL everyone.
Years ago, a good friend told me about a wonderful company and a great tool "Call option" to capture the upside. I was very cautious, I abide by Buffett's suggestion: don't do anything if you do not fully understand it.
It turned out my friend was right, it indeed was a great company, business was booming, stock went up, he made more than 10 fold in a year through options (buying calls and selling covered calls, etc). Then one day, he said the QR is coming, this company always beat estimates. He said he was buying Weekly Calls and I should too. I spent a lot of effort to study the details, including what happened right after the previous QRs. I know the past doesn't guarantee the future, but it seems worth the risk, I could gain a lot of money in a day. I bought the weekly Calls the day before QR. I was so nervous before the QR. I was worried about losing, also excited about the big bucks I was going to earn. About one hour after market closing, suddenly I saw the after-hour price jumped, then within seconds it went 3% lower than the daily closing and stayed there. I knew it's bad. The QR missed. I still didn't know what's to come. The next day my account went down 99%. Lost $90k in my first try on a sure shot. I still remember how painful it was. I was fortunate at that time I only had one account enabled for options. From a bigger picture point of view, that loss didn't make a big dent in my total. Still, I was traumatized by that experience. I had to explain to my wife why a self claimed investment genius suddenly lost 99%. It's not fun.
I posted several times to warn people on this forum to be careful about short term options. I had a long post a while back and again yesterday. If you don't have experience in Options, better start with small amount. You are likely to lose it. Ideally play with the dividend from your index holding. Or play with some trading profit. From my point of view, every dollar I lost equivalents to twenty future dollars.
If I own shares, I can sit on the position, wait through the cloudy days. Or even buy more if the market offers me great opportunities. (That's another area that needs attention. Not all stocks are suitable for averaging down. Some stocks do go to zero.)
Many people check the "available shares for shorting" to predict the stock price. The stock can go down even if nobody shorts new shares. Some market makers who sold covered Calls also bought shares to back it. Then they sell the shares so they don't have the holding risk. We are talking about a lot of shares. They don't have to short anything. Selling their long shares can drive down the stock price. I am not defending the shorts. Just to explain there are other major reasons for drop in addition to the shorts.
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