I Lost $400k, Almost Everything I Had, on a Single Robinhood Bet
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This wasn't Robinhood's fault. You could do this with any brokerage. I hope the author gets help for his gambling addiction, because it sounds more like that than anything else.
I'm going feeling pretty smug about my index fund investments right about now...
That said his income sounds incredible and he's young. He should land on his feet if he can stay away from the casino.
(Proceeds to do the least conservative thing imaginable. )
Perhaps this fellow needs to see a therapist regarding staggering levels of cognitive dissonance. Heck, he could pick a stranger on a park bench and ask if A) this strategy seems conservative or perhaps B) the riskiest strategy imaginable. I don’t think I could come up with a riskier plan if I tried. I don’t think any random person would describe it as careful or conservative.
Also he should never open a trading account again and block /r/wallstreetbets or whatever stock meme central is these days.
Market Wizards: Interviews with Top Traders by Jack Schwager, considered a classic, focuses on the psychology of trading. At the end of the book, the author reflects on the one thing that all of his subjects had in common. Every one of them experienced a massive loss, sometimes several, early in their careers. And every one of them came back with the discipline to cut future losses at predetermined thresholds.
From personal experience, it's also crucial to lock in profits. You need to set a reasonable sell-down schedule that won't leave you with the urge to claw your face apart if you miss the chance to sell. I recall reading that missed opportunities tend to haunt traders much more than losses. This was certainly true for me and part of the reason why I decided to get out of trading altogether. I ended up with a tidy profit but it still hurts to think about the life-changing amount that I missed out on. If I had followed a system and banked half or two thirds of the life-changing amount, I am pretty sure I would have had no regrets. That's because I never got hung up on taking an acceptable loss on a position that would have eventually turned a profit. Just like in poker, it's easy to absolve yourself of blame, when you are following a good strategy.
But at the end of the day, one has to understand that trading is gambling. And you don't gamble with more than you can stand to lose. I've learned that gambling is not for me and so I no longer trade.
May be he actually is conservative. May be it is his (historically) safe nature that made him bad at understanding risk in other areas.
As an analogy: I'm good at assessing risk while driving. Highway speeds are less safe than residential roads, backseat is safer than front seat, etc. Well, let's do something different, let's go skydiving. I have NO risk profile to assess skydiving. My conservative background doesn't prepare me for this - so I screw it up.
If he'd bought BABA stock outright instead of optioning it, he'd have $200,000 right now instead of $0.
This was glided over without much detail. Warren Buffett did make this bet. But he won it! https://longbets.org/362/ It's like saying "You know how Galileo was talking about an experiment to see if heavier things fall faster? My truthful belief is that I don't necessarily believe that something lighter could fall at the same speed".
>If their model is payment for order flow, there's no question they just want you to trade, no matter if you win or lose money.
The broker wanting people to trade is also the case if they had charged $10 per trade, the prior business model for retail trading.
It’s in Robinhood’s interest to make it fun and seem more official than “just gambling”.
You want to make a “safe bet” and decide to buy a bunch of options…whoo boy.
... during a pandemic. ... with all your life savings.
I’d love to ask this guy what he considers risky.
A good way to judge the riskiness of a stock is to look at the current implied volatility. Currently the 1-month IV is 20 for SPY (an S&P 500 ETF) and 53 for BABA, according to https://marketchameleon.com/Overview/BABA/IV/ . Index implied vols are lower because indices are more diversified than individual stocks and therefore safer.
If he put $400K into Alibaba stock, he might still have $150K or $200K, depending on when he did it.
He put all his life savings on what he considered a 'safe' investment in call options with a specific expiry date.
I love investing and taking big risks, but this is idiotic. His description of what call options are ("a leveraged bet on an underlying stock, which helps you increase the upside (or downside) of the bet you're trying to make") is simplistic at best.
Options are supposed to be a hedge, by my understanding (even though I personally don't use them that way); but call them what you like, just don't call them a "safe bet" no matter the underlying stock.
(Robinhood sounds, at most, peripheral to what happened here. The U.S. offers lots of ways for a legal adult to blow through $400K in a few days or weeks.)
Says the guy who lost $400k. Needless to say his beliefs are wrong.
Finding stocks with solid fundamentals, and buying and holding based on common sense is the strongest strategy. For example you see that Microsoft's ARM operating system is getting bad reviews, buy Apple.
Also, the whole market is rigged in big finance's favour. They can borrow shares from thin air, and pump and dump whilst getting the smallest of fines.
Ignore financial news. It's all owned by the same big companies, and is weaponised.
If you try to day trade, you are just going to be outperformed by the algos and the hedgies, who can trade smarter and faster with information you don't have.
Say what you want about the Gamestop apes, but many have been holding for a whole year.
"The stock market is a device for transferring money from the impatient to the patient." ~ Warren Buffet
He clearly had 0 financial knowledge and just took the buy ratings on the stock page.
That’s nuts.
In terms of options suitability there is no verification process; it’s all based on self-made attestations.
This could happen with nearly any broker. In the past a large trade might have been questioned especially in a newer account. However, with online trading today everything is automated so the human that may have been like “Hey fella, you may want to think this through” is not there anymore.
Blaming the brokerage is just stilly. Here a rank amateur made making very amateur trades with no risk management. You reap what you sow. The derivatives markets are not playthings.
To those that have been there, hat tip. You don’t know it until you do.
Live and death situation, you’ll become religious for a minute. I think the important thing isn’t sticking with the spur of the moment promises you make to your god however new they are to you, but rather remembering that feeling. At least that is the thing you can grow from.
What he's describing sounds more like denial. The situation was already over. He lost everything and was trying to wish it back into existence.
Also SEC: yolo volatility you buy from a team of phds at citadel if you want.
The first rule of gambling is that you only gamble what you can afford to lose.
You lost. Tough titties. You broke the first rule.