Story of a newbie options trader
(Warning: Long but interesting read ;) )
As the year draws to a close, I wanted to share my story, and my resolution for 2025. I hope you find the story interesting, and maybe we can learn something from each other.
I started learning and trading options in Apr 2024 ... the basics -- what are calls / puts? expiry dates, strike price ... learnt the jargon ... DTE??? ... LOL, I only knew DTF until then. Jokes aside.
I'm an engineer, and pretty good at math. I started loving options trading, because I realized that it is not really 'gambling', it is mathematics :)
Apr 2024: Trading
I was never an 'investor' mindset. I used to buy stocks low, and sell them when I get 10% profit. Then I tried options ... Started selling puts. This worked fine until the market started acting crazy from Aug. My puts got assigned, but fortunately had liquid cash. Waited for a while for the stock to go back up, but it didn't hence sold at a loss.
>>> First mistake: If you get assigned by shorting (cash secured) puts, use covered calls until you make profit, and then let the covered call get assigned, and exit the trade
Aug-Oct: Investor
Watched a lot of YouTube videos from prominent economists, CEOs from JP Morgan, Golman Sachs and the like ... Everyone unanimously said that the market was overvalued and was due for a crash. Buffet was sitting on a cashpile of $300 billion+ ... I bought puts hoping to make a shitload of money when the market crashes and then reinvest it back at the bottom ... and hopefully be a f*king millionaire by 2025. I really wanted to be an 'investor'
Surprise, Surprise!!! DIDN'T WORK!!!
>>> Second mistake: Never buy options (either calls or puts) without getting a CLEAR direction from the market. Without a direction, you're simply gambling! Never 'bet' only based on the views of experts -- they may be right -- but "markets can stay irrational longer than you can stay solvent". Learnt the hard way
After a lot of introspection, I started realizing that I can't really make money from options if I'm a "perma-bear" waiting for a black swan event to happen. Markets are designed to go up in the long run. No one wants them to go down. I started training my brain to become a bull. I came across an excellent quote -- "Bears sound clever, but bulls make money"
Nov: Bitcoin
My P&L had almost evened out by Nov, and I wanted to start afresh. I was hopeful of a Harris victory (because I lean left of center, but that's another matter). But when Trump started leading on Nov 5th, I decided I will be on the bulls side. I bought a lot of IBIT. I bought TESLA. It paid off. I am now trading options for IBIT and TESLA.
Then, I came across Microstrategy. I spent hours listening to various podcasters, critics, and folks on X. I realized that MSTR is a "trader's dream"! With its volatility, a good trader can really make a lot of money. And I did, I made thousands in profit buying MSTR call options!! Until ... I bought call options when it was at an ATH, and it crashed like a pack of cards. LOL
>>>> Third mistake: NEVER buy options when the volatility is high, and the stock is at an ATH or ATL. Wait for a direction.
Disclaimer: I am NOT promoting bitcoin or MSTR .. It could be applicable to any volatile stock, like TSLA.
Some other learnings:
-Unless you learn the greeks, you don't know what you're doing in options
-When the volatility is high, sell options
-When the volatility is low, buy options
-Wait for a trend
-When buying options, always prefer ones with the farthest DTE, and when selling options always consider the closest possible DTE to get the theta benefit.
-Preferably choose LEAPS (with deep ITM calls), and do covered calls
-Choose OTM strike prices only if you are REALLY sure. The risk is too high
In summary, I made a profit of around $105k in 8 months, and loss of $130k (My starting capital was around $140k). I consider it as an investment of $25k, and I think I learned a LOT in the last few months. I know I will continue to make profit. My resolution for 2025 is to minimize my losses. And some day I will be a f*kin millionaire ;)
Hope this helps someone. Wish you all a very happy new year!!!!
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