Stories and Lessons

[justdoit]

Was just reading Kevin's post on the Short Term thread about his success (congrats!) and thought it would be great to hear more stories and lessons learned. I'd definitely love to learn more about what moves Kevin and others have made that have worked for them. Strategies, levels of risk, initial capital, etc.

Also, I'd love to hear stories of people losing a lot of money and lessons they learned? I know we hate talking about how much we've lost (especially when it seems like everyone else is making large profits) but I feel like we can learn just as much, if not more, from our mistakes as we can from our success.

 

[Johan]

All right, I'll go first.

Background: TSLA stock long since early 2012, nice core position has sat untouched, got in on average at $30. I wanted to trade but not touch the stock, so got in to options (never done it before). Started with $10k in April 2013 and was able to cash out $80k the week after Q2 earnings, and still have a little left to play with. Main lesson learned: buy when others are fearful, sell when others are greedy. Yeah I know it's a cliche but it's true. My best trade was taking some profit from calls (that were up over 100%) when the stock was trading sideways in august and when the GS "upgrade" downgrade came and TSLA dipped to $110 I called BS and bought Aug and Sept calls that I held past earnings.

Next lesson was in the first 15 mins after Q2 earnings I briefly saw my account valued at >$150k, but by the time I had decided to sell calls I only got $90k or so. Sold maybe 70%, held on to 30% thinking there was an outlying chance of a bounce, it never came and they expired worthless.

Last lesson is to never think you can estimate what the options premiums (both calls and puts) will be in x number of days or weeks, even if you are able to predict the price movement of the underlying (TSLA) correctly there is so much more that influences options pricing, especially the OTM options, that it's really hard. When you see your calls, for example, gaining 300% or 400% and you feel this is not really warranted, then you are probably right and should not get greedy but sell for profit.

I would advice to keep and eye on some particular calls (or puts) that you want and follow their price action for a few days before you set your buy limits. I owned both the Sept 170 calls and the Sept 180. None of them ever got in the money. Basic theory says the 180s, which are more out-of-the money, should increase more in price as TSLA gapped up post Q2, but in reality it turned out the Sept 170s had better gains (I bought both at the same time). So as you approach expiry the really OTM options will loose value really fast as the market becomes aware they will not become ITM, even though TSLA's price may be on the rise. As this happens sentiment and hence bid price changes very quickly. So don't get greedy with those and don't go buying the most extreme OTM call you can find just because you figure the more OTM it is the more leverage you have.

 

[ggr]

Two lessons for me, one good, one bad.

The bad: a combination of trading in haste because I was going to be out of touch for the whole day and saw an opportunity "too good to miss", and accidentally selecting a very short term option when I meant to (and thought I was) buying a few months out. By the time I realized (late that night) what I'd done I'd already lost 90%. Expensive mistakes certainly make good teachers.

The good: I mostly buy just-out-of-the-money calls and hold to close to expiry. If they're still out of the money, oh well, that's trading. If they're well in the money, Oh Joy, That's Trading! But what to do if they're only just in the money? They have no time value left, so if I sold them I would usually make a loss. But I noticed that there's often a run-up in the price on the morning of the first trading day after the expiry, which I assume is because people who hold and then exercise need to have shares delivered to them, and the seller of the calls has to come up with them somehow. So I always make sure I have enough margin to actually buy the stock, and so far there's always been enough of a pop for me to make a profit a couple of days later when I sell the shares (since I don't like to carry that much margin debt).

 

[emupilot]

I started investing with 200 shares of TSLA bought for $34.75 in February. I sold 100 shares at 92 and used the proceeds for call options. I've learned that I like being a coward with options. I don't like close expiration dates because I don't want to be at the mercy of market manipulators and external events. My strategy is to buy on dips and sell after a decent rise, so I'm not holding the options for more than 2-3 weeks at a time. With this strategy, I choose monthly options with an expiration date at least 3 weeks out and a strike price at 85-90% of the stock price to get a good balance between minimizing time decay, maximizing price movement, getting good % returns, and having breathing room if there is a short-term slump in the price. I also normally have some Jan15 calls but I unloaded even those at 169 because I don't think these prices are sustainable. I'm still honing my strategy and trying to be more brave, but my profit since I started with options is still almost double what it would have been with just stock. Since TSLA can not sustain this rate of increase forever, I hope that my cowardly strategy will pay off when the party's over and we get a downward correction.

 

[ChadS]

Somewhere around the mid-90's a very talented software engineer I worked with talked to a few of us at lunch about his day-trading habit. He was trading a few million dollars at a time, just working very short-term. The rest of us thought he was crazy (I almost spit out my drink when he said how much money he was moving around); but the market was going up and he was doing extremely well. In fact, he did so well over a year or two that a few coworkers gave him some of their money to manage, too. Most software engineers had little time to study or follow the market, so if somebody else figured it out, they wanted to leverage his work.

But as well all know, markets go down as well as up, and even if you are really smart and hard-working you can't predict it all. A year or two later he lost many millions of dollars, much of it other people's money. He killed himself.

I guess the best lesson I can come up with is, don't bet money you can't afford to lose. (And even if you do lose money you can't afford, stick around - it's only money. News is never as good or bad as it seems at first).

 

[marvinat0rz]

A year or two later he lost many millions of dollars, much of it other people's money. He killed himself.

I guess the best lesson I can come up with is, don't bet money you can't afford to lose. (And even if you do lose money you can't afford, stick around - it's only money. News is never as good or bad as it seems at first).

Solid piece of advice. That's a very sad story, and unfortunately what can happen when you disregard the downside of risk. I see potential in Tesla for the same story, now that people who have never been investing before use their entire retirement savings to buy Tesla shares at $165. Even if you are right about the future, there is plenty of potential to get burned.

 

[Norse]

Lesson learned:
* Do options with TSLA
* Don't do it yeat with so solar/buy stocks or leaps
* DO NOT sell stock and "wait for a new entrypoint in TSLA"

 

[anticitizen13.7]

Solid piece of advice. That's a very sad story, and unfortunately what can happen when you disregard the downside of risk. I see potential in Tesla for the same story, now that people who have never been investing before use their entire retirement savings to buy Tesla shares at $165. Even if you are right about the future, there is plenty of potential to get burned.

Agree completely. I worry that people have bet the farm on one company, and I know from experience that this is a bad idea. A friend of mine saw 500k+ wiped out in a single day during the dot com crash. Another lost millions betting on a single high risk mutual fund.

I have a very high degree of confidence in Tesla, but I would not bet everything on the stock.

 

[Cameron]

Well I first started following Tesla back when it had its IPO, I was a sophomore in high school and I remember talking to my dad about us opening up a investment account and me buying a couple shares with my savings. I just thought the roadster was the coolest thing, and somehow I knew Tesla was special. Unfortunately it wasn't till about a year ago I finally took it upon myself to go open my account. At this point I had developed quite the fascination with the stock market and of course the massive amounts of wealth that could be made. With the account now open I quickly learned that I needed at least 25k in my account if I wanted to actively trade, which is what I found myself often trying to do. So I managed to convince my dad to lend me the 25k to let sit in the account and only trade with the 2k I had saved up. In theory that would work but suddenly having access to all that money was inevitably a bad idea. Although I had a good understanding of the markets and how trading works, in reality I had no idea what I was doing. Long story short, within 3 days I had lost about 9k, which for me was devastating. I took some time to analyze what I had done and what I needed to change. I finally decided to put the 18k I hadn't lost all into Tesla and just let it sit. All along I knew Tesla was going to be a game changer and the Model S was starting to show up all over where I lived. So I buy 500 shares at $36 and well the rest is history. Just recently though Ive started trading options which had proven to be quite promising. If only I had been trading options all along..

 

[blakegallagher]

I need to wait another 90 days before I'm allowed to trade options

could be worth setting up a new account somewhere. Not sure how hard it is to do from singapore but I know tradeking or optionhouse can get you trading options much quicker than 90 days if you are in the US.

 

[Adm]

The one thing I've learned is that it's easy to trade in a bull market... and many people overestimate their skills because of their success in that period.

Never assume anything (especially your ability to outplay others). Good investors work very hard to know their facts.

 

[gg_got_a_tesla]

Paper money from stock appreciation is what it is. Cash in from time to time. I've been doing that with TSLA, getting in and out with vanilla stock at various levels.

I've been very fortunate over the past 14 years with employee stock options but, have also lost (or more accurately, never realized all the gains) when I sat on some vested stock options for too long.

This hypergrowth phase too will pass for TSLA. Tesla employees who might be reading this: please sell vested stock options progressively if you can; you deserve this payday. Others, balance the risk and any sleepless nights against the peace of mind and a healthy bank balance by realizing some gains.

At the end of it all, stay humble And, despite what Gordon Gekko says, Greed's not Good!

 

[Norse]

With optionxpress.com you can trade options from day 1. Non-US aswell.

 

[marvinat0rz]

Well I first started following Tesla back when it had its IPO, I was a sophomore in high school and I remember talking to my dad about us opening up a investment account and me buying a couple shares with my savings. I just thought the roadster was the coolest thing, and somehow I knew Tesla was special. Unfortunately it wasn't till about a year ago I finally took it upon myself to go open my account. At this point I had developed quite the fascination with the stock market and of course the massive amounts of wealth that could be made. With the account now open I quickly learned that I needed at least 25k in my account if I wanted to actively trade, which is what I found myself often trying to do. So I managed to convince my dad to lend me the 25k to let sit in the account and only trade with the 2k I had saved up. In theory that would work but suddenly having access to all that money was inevitably a bad idea. Although I had a good understanding of the markets and how trading works, in reality I had no idea what I was doing. Long story short, within 3 days I had lost about 9k, which for me was devastating. I took some time to analyze what I had done and what I needed to change. I finally decided to put the 18k I hadn't lost all into Tesla and just let it sit. All along I knew Tesla was going to be a game changer and the Model S was starting to show up all over where I lived. So I buy 500 shares at $36 and well the rest is history. Just recently though Ive started trading options which had proven to be quite promising. If only I had been trading options all along..

No offense, but you haven't really learned anything. You made one risky bet with borrowed money, when it didn't pan out you replaced it with a different risky bet with borrowed money. The second time, your bet paid off. Now you're lamenting that you didn't make an even riskier bet with the remaining 18K you borrowed. If you continue with this strategy, I guarantee that you will be wiped out.

Please be careful. Don't do speculative stock investments or (heaven forbid!) options trading with money you can't afford to lose.

 

[kevin99]

Somewhere around the mid-90's a very talented software engineer I worked with talked to a few of us at lunch about his day-trading habit. He was trading a few million dollars at a time, just working very short-term. The rest of us thought he was crazy (I almost spit out my drink when he said how much money he was moving around); but the market was going up and he was doing extremely well. In fact, he did so well over a year or two that a few coworkers gave him some of their money to manage, too. Most software engineers had little time to study or follow the market, so if somebody else figured it out, they wanted to leverage his work.

But as well all know, markets go down as well as up, and even if you are really smart and hard-working you can't predict it all. A year or two later he lost many millions of dollars, much of it other people's money. He killed himself.

I guess the best lesson I can come up with is, don't bet money you can't afford to lose. (And even if you do lose money you can't afford, stick around - it's only money. News is never as good or bad as it seems at first).

That is a horrible story. I hope you are not suggesting my path.

I sure learned the great lessons. Jesse livermore is one figure people should not forget. As much as he is considered one of the greatest trader in history, he killed himself:

"
On November 28, 1940, Livermore shot and killed himself in the cloakroom of the Sherry Netherland Hotel in Manhattan. The police revealed that there was a suicide note of eight small handwritten pages in Livermore's personal notebook. It was reported in the November 30 issue of the New York Tribune.[SUP][13][/SUP] The press wanted to know what it said, and the police tersely responded: “There was a leather-bound memo book found in Mr. Livermore's pocket. It was addressed to his wife.” A police spokesman read from the notebook: “My dear Nina: Can’t help it. Things have been bad with me. I am tired of fighting. Can’t carry on any longer. This is the only way out. I am unworthy of your love. I am a failure. I am truly sorry, but this is the only way out for me. Love Laurie”.[SUP][14]"[/SUP]



Jesse Lauriston Livermore - Wikipedia, the free encyclopedia


I read his book. I think I learn from it how to go big, but also how you could shot yourself.

 

[anticitizen13.7]

This hypergrowth phase too will pass for TSLA. Tesla employees who might be reading this: please sell vested stock options progressively if you can; you deserve this payday. Others, balance the risk and any sleepless nights against the peace of mind and a healthy bank balance by realizing some gains.

This is a good suggestion. If one is employed by Tesla and making money from them directly, it makes sense to diversify to some non-Tesla securities.

No offense, but you haven't really learned anything. You made one risky bet with borrowed money, when it didn't pan out you replaced it with a different risky bet with borrowed money. The second time, your bet paid off. Now you're lamenting that you didn't make an even riskier bet with the remaining 18K you borrowed. If you continue with this strategy, I guarantee that you will be wiped out.

I think the person actively traded for the first few days and lost money. The investment in TSLA appears to be more of a "buy and hold" strategy based on company fundamentals.

Agree with you on the options trading though. That is playing with fire for a beginner.

 

[TSLAopt]

could be worth setting up a new account somewhere. Not sure how hard it is to do from singapore but I know tradeking or optionhouse can get you trading options much quicker than 90 days if you are in the US.

Interactive Brokers has no problems opening up accounts for Singapore residents and is probably the best place to do options trading in terms of overall transaction cost (when you include execution quality), however, if your a beginner it may not be a good fit as other brokers may have people that can hand hold you through learning options better.