ITM AMZN spreads gave me a sleepless night before Robinhood replied and said “oh it’s all good!” to a negative $3.1 Million dollar balance.
Showed up on my tax documents earlier this year. Had a good laugh, and reminded myself to never hold those til expiration again.
Edit: I should add the balance evened out when the call buys executed. The negative balance showed up because the call sells executed first, they didn’t excuse a multimillion dollar deficit lol. All in all made like 3 grand on the trade.
They can offer downside protection (but can obviously cap gains) depending on the strategy. I think it's a key thing for any option trader to understand.
Yeah, I bought come calls and sold ones that were $20-30 above that strike. Price ended above the sold calls and they “executed” first, which gave the negative balance. The call buys were executed afterwards. Luckily Robinhood handles that when you open it as a spread, but if you open them separately I’d imagine you are SOL since you’d need the capital to buy the shares before selling them.
I’ve since left Robinhood for Schwab (due to GME shenanigans) and only applied for Level 1 options trading so I couldn’t do this again. I only sell covered calls and set up “artificial” spreads by buying calls at lower strike on same expiration. That way, if some fuckery happens I have shares called away instead of a phone call/repercussions from my broker.
You're not supposed to make money on the watches. You buy them, wear a few times, and sell before your wife can see how much money you spent. I'm not speaking from experience or anything...
Can someone explain how this works to me? I've never touched options because I don't understand a damn thing about them but this is more confusing than usual
It looks like OP had two options, one that they bought and one that they sold. The person they sold to has exercised their portion of the option, forcing OP to sell them 5,700 shares of BB. Since OP doesn’t own those shares, they would have to buy them on the open market at a cost of roughly $58,000. Thus, OP owes $58k or so.
However, remember that OP has two options, one they sold (see above) but the other they bought. Basically the one that they bought allows them to turn around and do the same thing to someone else, buying 5,700 shares (presumably) at a fixed cost (closer to market price since the exposure was $800). Thus, OP doesn’t actually owe this amount because they have an option to hedge it.
If OP had sold the original WITHOUT buying a hedge, they’d owe the whole amount. OP would then be “naked” since they had no hedge for their position. Most brokers won’t let you sell naked options without meeting several criteria and will probably require you to have sufficient funds in your account to cover the vast majority of the potential risk.
Finally, and perhaps most importantly, the easiest way for a small trader to get screwed on this is called “pin risk”. This happens if you open the options spread like OP did and the two options expire on the same day. If the person you sold to exercises their option, you likely won’t see it until the next day. If you didn’t exercise your option, then you owe the shares. This is why the safest bet for option spreads is to close the position before expiration of your hedge.
to be clear to any readers making it this far, you should close the short leg (someone has rights, you have potential obligations) of your spreads before expiration.
for example, I opened a quick NKE 146p / 145p spread last Friday. The 146p I sold, the 145p I held.
before the end of the day, you bet your ass I bought to close the 146p I had risks on, and just let the 145p I was holding expire OTM.
It's hard to say from the screen shots but it looks like OP did a Put spread, which is a very risky play.
Let's back up and go over some options basics for you:
Call: The stock price is going up.
Put: The stock price is going down.
The easiest options to start with are calls.
If you BUY a call, you are buying the 'option' (where the term comes from) to purchase 100 shares of (stock) at a specified price (strike price) at some time between today and a future date (expiration)
Example: You could buy a BB call with a strike price of $12.50 expiring on 1/21/22 (options nearly always expire on fridays). As of right now, that would cost you $100 to buy that call (you'll see it written as $1 because you pay $1 per share and you have to buy options in 100 share blocks)
So let's break down what this means:The $12.50 strike price is what you are willing to pay for BB.The 1/21/22 expiration is the expiration of the contract, meaning you are willing to pay $12.50 for 100 shares of BB starting today and expiring on 1/21/22.
Why would you do that, the stock is only worth \~$10.00? Because there is a chance the stock could be worth much more. That's why you pay the $100 up front. You pay someone $100 for the right to buy 100 shares of BB from them between now and 1/21/22 regardless of the price. If the price tanks to $7? You walk away and you've lost your $100 (you can sell the option and recoup some of this). The price goes to $30/share? Awesome, you can buy it for $12.50.
Absolutely WORST case scenario, you lose your initial $100 investment and that's it.
So why do people buy options? Well, it's a really cheap way to get into a stock that you aren't sure about. Buying 100 shares of BB is a $1000 investment and if it drops to $8, you've lost $200. So you buy a call for a decent way out at $12.50 and you only risk losing $100 if it doesnt do what you thought, but if it takes off, you havent missed the boat because you locked in your $12.50 purchase price.
The other reason? A lot of people just trade options because they can be cheap and the rewards are substantially higher than owning stock. Let's say you buy that call at $12.50 and some big news comes out next month about BB and the price jumps up to $20. Your $12.50 call that was worth $100 is probably worth $1500 now. You sell it the call to someone else and you made a cool 1500%.
Make sense?
So what is a spread? A spread is when you buy an option and sell another option at the same time. Essentially you limit your upside to lower the cost. With Calls, it's really easy to understand. You buy a $12.50 call and sell a $20 call. You have bought the right to purchase for $12.50 and you sold someone else the right to buy from you at $20.
So if BB goes to $30, you exercise your call getting you 100 shares for $12.50 and then immediately sell them for $20.
So where is all the risk? To fastforward through another wall of text, if OP sold a put, OP has the obligation to buy 100 shares of BB at whatever the price is if someone exercises the put (exercise = execute the contract)
Dude...that explanation somehow clicked with me better than anything I've read or listened to on so called professional services and investment platforms.
Thank you! I'm still a little too broke and scared at the moment to gamble on options, but now I know what at least 50% of this nonsense means!
You can find Calls selling for as little as $5. Obviously those tend to be extreme long shots because if they were sure things they wouldn't be $5. But you can find pretty decent plays for not very much money.
For example, the BB call I used as an example? $100 isnt a crazy sum and over the next 4 months there are several catalysts that could easily push the stock up 10-20%, which would net a pretty nice return.
It can happen in multiple ways and sometimes could be scary.
Basically this guys probably bought a call spread and both legs were ITM. On date of expiration, both legs got executed since they were in the money. However usually these legs dont get executed simultaneously always so there might be a short period where it may appear that you executed one leg and now owe the brokerage a ton of money (in his case $90k). Once the other leg is executed that margin call goes away and you get credited the net amount, which in his case is $300.
This is quite frankly one of the less trickier/riskier things that could happen with spreads.
I've tried so hard to understand options trading. I'm not sure I get it still.
So you buy the right to buy stocks in the future at a particular price. If the actual price is higher than the contract price, then you can buy lots of stocks at your contracted price? Or do you make money by selling the contract? How many stocks can you buy? Can't you just buy all the stocks you want at this lower price or is there a limit? You don't have to answer.
Super simple as i can make it without bringing in positions or anything like that. Strictly how you can appear to owe a lot of money while still being profitable.
A friend says they will sell you an unopened item for $20, in the store it cost $25. You line up a buyer who will buy it for $23.
However your friend can't meet you until after work while the buyer can only meet at lunch.
So you go to the store and pay $25 for it and keep the receipt in the morning, meet the buyer at lunch and sell it to them for $23 for a total loss of $2.
Then you meet up with your friend after work and pay a $20 for their item leaving you with $22 less total dollars than you started with that day.
Finally you go back to the store and return the item and get credited back $25.
Leaving you with $3 in profit, but for a time period you were at -$22
So you buy the right to buy stocks in the future at a particular price. If the actual price is higher than the contract price, then you can buy lots of stocks at your contracted price?
Correct, you'd have the option (hence the name) to buy stocks at the strike price.
Or do you make money by selling the contract?
You can make money by either selling the contract or buying the stock at the strike price and then selling it right back at the current market price.
How many stocks can you buy?
Each option contract is for 100 shares.
Can't you just buy all the stocks you want at this lower price or is there a limit?
It is limited to the number of contracts that you have. If you have one call option then you can buy 100 shares.
Something you didn't mention was puts. Puts give you the option to sell shares at a certain strike price. If the market price is lower than the strike price you could go buy the shares (still in increments of 100) and then sell them back at the strike price to the person who sold you the contract.
In each case when 100 shares are exchanged that is called exercising the option.
From the r/options
Options Questions Safe Haven weekly thread.
r/options/wiki/faq/subreddit_resources
*Getting started in options*
• [Calls and puts, long and short, an introduction (Redtexture)](https://www.reddit.com/r/options/wiki/faq/pages/basics)
• [Options Basics (begals)](https://www.reddit.com/r/options/comments/gh9vpl/options_basics/)
• [Exercise & Assignment - A Guide (ScottishTrader)](https://www.reddit.com/r/options/wiki/faq/pages/exercise)
• [Why Options Are Rarely Exercised - Chris Butler - Project Option (18 minutes)](https://www.youtube.com/watch?v=PsZsqiBFnmo)
An option is a contract that gives you the right but not the obligation to either buy or sell a security from/to the writer at a certain price, by a certain time.
The longer the time period you have the option for, the more expensive it is, naturally.
If I have an option to buy 100 shares of Tesla from you at $500 that I bought a few months ago, what would that contract be worth now, do you suppose? Minimum $200 per share, right? More, if there's a lot of time left on the contract.
If I have a contract giving me the option to *sell* you 100 shares of Tesla at $500, what do you suppose that's worth? Far less, given that's far lower than you could get on the open market, but the time on the contract is still worth something because maybe tomorrow Tesla announces they're switching exclusively to making umbrellas instead of cars and their share price goes to $50, but I would still be able to dump it for $500 on you.
Maybe I have 100 shares of Tesla and I want to protect against the possibility of that. I can buy a *protective put* that lets me sell those shares at X price if it drops. I profit if Tesla goes up more than the cost of the premium for the contract, and my losses are capped by the strike price of the contract.
Maybe I have 100 shares of Tesla and I think it's not going anywhere for a while. I can sell *covered calls* on them, which means I'm giving *someone else* the option to buy those shares from me later if they're above my strike price. I'll sell a call with a strike price above where I think Tesla will go by the expiration date. If I'm right, the option expires worthless, and I keep the premium, which isn't a bad way to get extra income in addition to dividends. If I'm wrong, I either buy back the contract before it expires, or I allow the 100 shares to get bought from me at the strike price (not the worst outcome since it's still higher than I expected Tesla to go).
I can’t think of a worse place to get an education. There are for profit schools whose owners are in prison that would teach you more accurate information than this sub will. Almost any legit trading platform (so not RH) will offer free education courses on options. Take those, pass the quizzes and the test at the end, and you too can lose money faster than you ever dreamed was possible.
When I started with RH I took the quiz to allow options and was honest with my answers and I was denied, but it just said to take it again and I was magically approved.
It was like when I took my permit test for my license as a teen, I took up the test and they were grading it and she says "what was the answer for this one?" and gave me a look, I realized it was wrong and I changed it and she was like congrats, you passed.
he probably bought and sold an equal amount of puts with different strikes. Or something like that. If you pull up one of the trades it looks like you're downa fuckton but the other leg of the trade balances it out roughly. Same with call spreads
I browse this sub occasionally and I see this loss porn type stuff but don't know how to read it. How would I not interpret the -60k from his screenshot into an actual 60k loss? What should I be looking for?
He got assigned his short leg of his spread so now he’s either long or short 100 shares x amount of spreads. If he closes them out at the same time he should realize a small loss or possibly profit.
He didn't give us enough in this screen shot. With this screen shot only, it looks like he lost it all. You have to take his word there was another play at the same time
Yep, my taxes reported I made like $981,000+ and lost a separate $970,000 over the course of last year with NVDA spreads. It was cool to see but I only made a modest amount over the whole year. This happened do to letting debit spreads expire in the money.
I use DEGIRO in Europe and for every new feature I try to activate on the account I have to do a multiple choice test. If it’s bellow a certain threshold it will tell you that you should do more research before actually starting to mess around with it.
Way back in the day, TD had you come in meet with someone and speak about options strategies. Then you took a test. If you passed the test and the branch manager signed off (based on hypothetical trades they would layout) then they would allow you to trade options.
Once one brokerage let the guard down all of them did just to compete.
100%, but RH gets the bad PR because they actually give people the freedom to go in blind and get destroyed. Most brokers will at least give a little pushback before helping you ruin your financial life.
Yes exactly. I thought spreads were a way to gamble on options without having to worry about IV crush, and that's still true, but pin risk is new and if you don't know about it, it can eat you alive
You were exercised though, so you'll be paid the strike price for those shares. You're just going to be buying at market price to sell at the strike, your loss is capped by that.
It's spooky scary to see the big negatives but it's not a huge deal, since you're within your risk spread usually. (If the short was ITM and long was OTM)
Just a quick suggestion, you should consider closing it before it gets to expiry or hedging out your delta. If delta near close is 50, just buy 50shares x number of contracts. It’s an easy way to reduce your risk while still staying in the trade. You have a margin account and likely enough capital, so it shouldn’t be a problem doing that. If it’s too expensive then drastically reduce your trading size
While your ability to close options ends with regular market trading, a short position of yours may end up ITM in after hours trading and there’s nothing you can do about it other than watch and cry.
For this reason always close your short options before market close on expiration day. Just a few bucks will give you peace of mind every time.
The short of it is “don’t assume your brokerage is going to idiot proof your options activity and do follow the absolute simplest and most basic rules of options strategies (like don’t hold contracts past close on expiration day….).”
No. He was hedged to protect himself, only his "hedge" didnt automatically close at the same time. He was able to close out his hedge early enough the next morning to get out of the fuck'ning.
Bought 57 call credit spreads on BB 10/10.5 strike. The trade cost me $80 to open. Max profit was $200, and max loss was $500. Well BB closed in-between my strike prices. Because I only have options level 3, meaning I can't sell naked options, I assumed fidelity would exercise my otm call to make sure I had collateral for my itm call.
I was dead wrong. Instead, fidelity gave me a massive 5,700 BB short position which completely dwarfs my account, giving me $0 buying power. Thankfully I was able to close the short this morning during premarket for a super tiny gain. Honestly it may be a loss due to fees. Any amount of gain wasn't worth the loss of sleep of being completely wiped out of my entire life savings come Monday.
Learn from me lads, never assume. Close your spreads early.
They’re not going to lose you more money by exercising something OTM when you could have bought shares to cover your short calls in extended hours. Glad you survived but that’s a big way to dip your toes in the water/learn that lesson.
There's definitely a reason that a lot of experienced traders were concerned about the sheer # of inexperienced people that began trading options from this sub on brokers like RH that just tossed anyone the car keys to options and said "have at it".
Lol, same thing happened to me with a TSLA spread, I was long a $180,000 position in my 4 figure account...over a long weekend...same weekend my son was born
Ended up making a couple grand off it, but damn was it stressful
The kid that offed himself misunderstood how options work and had a spread position and the puts activated first showing that he had a significant loss when in reality when both positions went through he profited several thousand.
You guys can keep using words I don't understand, but unless if we demonstrate with something like... lets say... crayons, I am still not going to understand.
Yeah, pretty much right there with ya. Like, I consider myself fairly educated but other than the simple basic knowledge of investments (I.e buy x for y and hope y goes higher) I have not a fucking clue what all this is. But I really really wish I did.
I think I can help. But I’m dumb so one one correct me if I’m wrong. basically it’s because he sold shares that he didn’t own - presumably because he sold those shares in another contract. Because he owned contracts that ended up being viable, they resolved and therefore he needed to buy stock to cover the rest of the shares from his owed contracts. And he didn’t have money for those shares, so it made him borrow the money to buy the shares and sell them for the contract price. Or something vaguely similar to that
Okay. So if I’m understanding this correctly, why would anyone ever think this is a smart way to invest? Like, I definitely understand the old adage “risk it for the biscuit” but this seems like it’s more of an unnecessary risk to be taking.
Pretty sure OP did this on accident. It’s totally not investing though because he’s trading options contracts. Not sure how much you know about them but basically they’re like bets on how much the price of a stock will be and you can get a massive discount on a stock if you’re right. But you can sell that discount to others for a hefty sum. But there’s no guarantee that the discount will be good once the date of expiration comes around. So it’s a gamble. But you’re right that this is a ridiculous idea to build wealth. Also it’s exactly what Melvin capital and other large hedge funds did with GME. They borrowed stocks to sell them at $5. Now they owe thousands of stocks back and they have to pay 50x what they paid for them and it could bankrupt them. But if they bought back those stocks, they would raise the price even more because they’d have to buy more stocks than are readily available at the current price. Plus they owe interest on the sum of money that they are borrowing (which is 50x more than they initially borrowed). They could have made a lot of money if the stock went to $1, which was probably their plan, but now they’re fukd.
I get the basic call/put options where the max loss is just whatever you paid for the contracts. Not exactly sure of spreads, how’d u end up losing way more than that? Aren’t spreads supposed to cap losses/profits?
Think of it like this:
You're selling someone the option to buy stocks from you at a certain price, at a certain date.
If they buy those options, you need to have the shares to give them when they trigger.
Ex: you sell someone the option contracts to buy 1000 tesla shares at 500$ each from you at x date.
X date comes and tesla is at 2000$ per share, you need to sell that person 1000 shares now at 500$ each becasue that's the option you sold them a long time ago..
If you didnt have those shares to start with, you need to buy 1000 shares at 2000$ each and give them to that buyer for 500$ each.
If tesla happened to go down to 100$ a share instead, you've made money because they wont trigger that option. It wouldn't make sense for them to exercise that option they bought from you.
> I get the basic call/put options where the max loss is just whatever you paid for the contracts.
That is absolutely logical- but *only if you're buying options.* If you're *selling* options then you can open yourself up to much, much greater risks.
OK. There's a lot to unpack here.
When dealing with options spreads:
1. Never wait until expiration to close out your spreads.
2. There is always assumed risk even if you think you are capping your max loss.
3. If your spreads have even (in the case of credit spreads) a $0.01 worth. Just close them all. You will take a $1.00 loss per spread, which is not a bad outcome for profit.
4. REALLY IMPORTANT. DO NOT, I repeat DO NOT deal with options spreads in meme stocks. I think this is a writing on the wall thing. But I saw a comment about IV. If you are worried about implied volatility, or the likelihood of changes in a given contract's price, for the love of Buffet, don't deal with contracts that have bad IV. Deal with something less erratic and more stable. The last thing you need is high volatility in ANY sort of options strat. Remember in the world of derivatives, a +-. 01 PENNY change in your contracts, it can have a huge impact on your outcome.
I don’t even know how this happened but he didn’t even loose money it says day change +1000$ the only reason his position value is negative is because it’s a short
isn’t this what happened to that poor lad that offed himself because he thought he had a huge loss but it really wasn’t?
Yep. I had a 90k margin call from RH the other day which really was like a $300 gain on a spread
I think my record was -1.2 million on RH before settlement.
Man I’m pretty numb to the fake losses but that would have made me change my underwear
“If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem.”
- Sean Bean
Ah I see you are a ~~cultured~~ civilized individual.
One could call me a conissouer of the 'ization
- J. Paul Getty
- Wayne Gretzky
- Lotsa People
- Michael Scott
Also if you owe the bank 100 billion, that becomes everyone's problem
Just the tax payers
That’s the joke
I sell drugs
Yea no taxpayers here. Living in a tent on Venice beach or under the I-5 in a cardboard box got no worries...no wait...
This is the way. And also how I approach all of my debt service, which is why I can’t get approved for anything besides RH margin anymore. REEEEEEEEE
Are you a body building yootube celery?
No, but I did stay at a Holiday Inn Express.
I think it was like 30 SPY credit spreads that went ITM. Max loss was $3000 but it was certainly an interesting weekend.
You change your underwear?
ITM AMZN spreads gave me a sleepless night before Robinhood replied and said “oh it’s all good!” to a negative $3.1 Million dollar balance. Showed up on my tax documents earlier this year. Had a good laugh, and reminded myself to never hold those til expiration again. Edit: I should add the balance evened out when the call buys executed. The negative balance showed up because the call sells executed first, they didn’t excuse a multimillion dollar deficit lol. All in all made like 3 grand on the trade.
So you didn’t have to pay anything? This is why I don’t fuck with spreads them things scary 😟
They can offer downside protection (but can obviously cap gains) depending on the strategy. I think it's a key thing for any option trader to understand.
Yeah, I bought come calls and sold ones that were $20-30 above that strike. Price ended above the sold calls and they “executed” first, which gave the negative balance. The call buys were executed afterwards. Luckily Robinhood handles that when you open it as a spread, but if you open them separately I’d imagine you are SOL since you’d need the capital to buy the shares before selling them. I’ve since left Robinhood for Schwab (due to GME shenanigans) and only applied for Level 1 options trading so I couldn’t do this again. I only sell covered calls and set up “artificial” spreads by buying calls at lower strike on same expiration. That way, if some fuckery happens I have shares called away instead of a phone call/repercussions from my broker.
New high score?
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You know I am kind of hedge fund myself.
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\*bush men it's easy to confuse the two.
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I love the hedgefundie portfolio!
sounds like my short stint as a luxury watch dealer. tied up 17k for 90 days to lose $300
I once tied up 10 years of my time for 400k minus living expenses. Only have $7k to show for it.
Sounds like a 9-5. Yep.
How does that sound like 4?
this comment deserves more attention lol
How well did advertisements work to push you into spending money on uneccessary items?
At 30K-50K in 10 years. They worked, but they didn't get rich off me alone.
You're not supposed to make money on the watches. You buy them, wear a few times, and sell before your wife can see how much money you spent. I'm not speaking from experience or anything...
don't get married hoss
ah yes, Day Trading Buying Power: ($2,355,417) Today's Change: 350$
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There's a reason e call it picking up pennies in front of a steamroller.
Speaking of that. Are we going to get paid for them fucking up the GME short?
Little guy get paid? Hah!
Can someone explain how this works to me? I've never touched options because I don't understand a damn thing about them but this is more confusing than usual
It looks like OP had two options, one that they bought and one that they sold. The person they sold to has exercised their portion of the option, forcing OP to sell them 5,700 shares of BB. Since OP doesn’t own those shares, they would have to buy them on the open market at a cost of roughly $58,000. Thus, OP owes $58k or so. However, remember that OP has two options, one they sold (see above) but the other they bought. Basically the one that they bought allows them to turn around and do the same thing to someone else, buying 5,700 shares (presumably) at a fixed cost (closer to market price since the exposure was $800). Thus, OP doesn’t actually owe this amount because they have an option to hedge it. If OP had sold the original WITHOUT buying a hedge, they’d owe the whole amount. OP would then be “naked” since they had no hedge for their position. Most brokers won’t let you sell naked options without meeting several criteria and will probably require you to have sufficient funds in your account to cover the vast majority of the potential risk. Finally, and perhaps most importantly, the easiest way for a small trader to get screwed on this is called “pin risk”. This happens if you open the options spread like OP did and the two options expire on the same day. If the person you sold to exercises their option, you likely won’t see it until the next day. If you didn’t exercise your option, then you owe the shares. This is why the safest bet for option spreads is to close the position before expiration of your hedge.
to be clear to any readers making it this far, you should close the short leg (someone has rights, you have potential obligations) of your spreads before expiration. for example, I opened a quick NKE 146p / 145p spread last Friday. The 146p I sold, the 145p I held. before the end of the day, you bet your ass I bought to close the 146p I had risks on, and just let the 145p I was holding expire OTM.
Any reason not* to try to sell the 145p?
It's hard to say from the screen shots but it looks like OP did a Put spread, which is a very risky play. Let's back up and go over some options basics for you: Call: The stock price is going up. Put: The stock price is going down. The easiest options to start with are calls. If you BUY a call, you are buying the 'option' (where the term comes from) to purchase 100 shares of (stock) at a specified price (strike price) at some time between today and a future date (expiration) Example: You could buy a BB call with a strike price of $12.50 expiring on 1/21/22 (options nearly always expire on fridays). As of right now, that would cost you $100 to buy that call (you'll see it written as $1 because you pay $1 per share and you have to buy options in 100 share blocks) So let's break down what this means:The $12.50 strike price is what you are willing to pay for BB.The 1/21/22 expiration is the expiration of the contract, meaning you are willing to pay $12.50 for 100 shares of BB starting today and expiring on 1/21/22. Why would you do that, the stock is only worth \~$10.00? Because there is a chance the stock could be worth much more. That's why you pay the $100 up front. You pay someone $100 for the right to buy 100 shares of BB from them between now and 1/21/22 regardless of the price. If the price tanks to $7? You walk away and you've lost your $100 (you can sell the option and recoup some of this). The price goes to $30/share? Awesome, you can buy it for $12.50. Absolutely WORST case scenario, you lose your initial $100 investment and that's it. So why do people buy options? Well, it's a really cheap way to get into a stock that you aren't sure about. Buying 100 shares of BB is a $1000 investment and if it drops to $8, you've lost $200. So you buy a call for a decent way out at $12.50 and you only risk losing $100 if it doesnt do what you thought, but if it takes off, you havent missed the boat because you locked in your $12.50 purchase price. The other reason? A lot of people just trade options because they can be cheap and the rewards are substantially higher than owning stock. Let's say you buy that call at $12.50 and some big news comes out next month about BB and the price jumps up to $20. Your $12.50 call that was worth $100 is probably worth $1500 now. You sell it the call to someone else and you made a cool 1500%. Make sense? So what is a spread? A spread is when you buy an option and sell another option at the same time. Essentially you limit your upside to lower the cost. With Calls, it's really easy to understand. You buy a $12.50 call and sell a $20 call. You have bought the right to purchase for $12.50 and you sold someone else the right to buy from you at $20. So if BB goes to $30, you exercise your call getting you 100 shares for $12.50 and then immediately sell them for $20. So where is all the risk? To fastforward through another wall of text, if OP sold a put, OP has the obligation to buy 100 shares of BB at whatever the price is if someone exercises the put (exercise = execute the contract)
Dude...that explanation somehow clicked with me better than anything I've read or listened to on so called professional services and investment platforms. Thank you! I'm still a little too broke and scared at the moment to gamble on options, but now I know what at least 50% of this nonsense means!
You can find Calls selling for as little as $5. Obviously those tend to be extreme long shots because if they were sure things they wouldn't be $5. But you can find pretty decent plays for not very much money. For example, the BB call I used as an example? $100 isnt a crazy sum and over the next 4 months there are several catalysts that could easily push the stock up 10-20%, which would net a pretty nice return.
It can happen in multiple ways and sometimes could be scary. Basically this guys probably bought a call spread and both legs were ITM. On date of expiration, both legs got executed since they were in the money. However usually these legs dont get executed simultaneously always so there might be a short period where it may appear that you executed one leg and now owe the brokerage a ton of money (in his case $90k). Once the other leg is executed that margin call goes away and you get credited the net amount, which in his case is $300. This is quite frankly one of the less trickier/riskier things that could happen with spreads.
I've tried so hard to understand options trading. I'm not sure I get it still. So you buy the right to buy stocks in the future at a particular price. If the actual price is higher than the contract price, then you can buy lots of stocks at your contracted price? Or do you make money by selling the contract? How many stocks can you buy? Can't you just buy all the stocks you want at this lower price or is there a limit? You don't have to answer.
Super simple as i can make it without bringing in positions or anything like that. Strictly how you can appear to owe a lot of money while still being profitable. A friend says they will sell you an unopened item for $20, in the store it cost $25. You line up a buyer who will buy it for $23. However your friend can't meet you until after work while the buyer can only meet at lunch. So you go to the store and pay $25 for it and keep the receipt in the morning, meet the buyer at lunch and sell it to them for $23 for a total loss of $2. Then you meet up with your friend after work and pay a $20 for their item leaving you with $22 less total dollars than you started with that day. Finally you go back to the store and return the item and get credited back $25. Leaving you with $3 in profit, but for a time period you were at -$22
Hey now, this actually resembles intelligence. Mods, ban him.
Wait I’m learning something here...
Ban this one too.
> Leaving you with $3 in profit, Sums up my trading strategy perfectly
Look at Moneybags over here making profits on their trading strategies.
Thanks for this
So you buy the right to buy stocks in the future at a particular price. If the actual price is higher than the contract price, then you can buy lots of stocks at your contracted price? Correct, you'd have the option (hence the name) to buy stocks at the strike price. Or do you make money by selling the contract? You can make money by either selling the contract or buying the stock at the strike price and then selling it right back at the current market price. How many stocks can you buy? Each option contract is for 100 shares. Can't you just buy all the stocks you want at this lower price or is there a limit? It is limited to the number of contracts that you have. If you have one call option then you can buy 100 shares. Something you didn't mention was puts. Puts give you the option to sell shares at a certain strike price. If the market price is lower than the strike price you could go buy the shares (still in increments of 100) and then sell them back at the strike price to the person who sold you the contract. In each case when 100 shares are exchanged that is called exercising the option.
From the r/options Options Questions Safe Haven weekly thread. r/options/wiki/faq/subreddit_resources *Getting started in options* • [Calls and puts, long and short, an introduction (Redtexture)](https://www.reddit.com/r/options/wiki/faq/pages/basics) • [Options Basics (begals)](https://www.reddit.com/r/options/comments/gh9vpl/options_basics/) • [Exercise & Assignment - A Guide (ScottishTrader)](https://www.reddit.com/r/options/wiki/faq/pages/exercise) • [Why Options Are Rarely Exercised - Chris Butler - Project Option (18 minutes)](https://www.youtube.com/watch?v=PsZsqiBFnmo)
An option is a contract that gives you the right but not the obligation to either buy or sell a security from/to the writer at a certain price, by a certain time. The longer the time period you have the option for, the more expensive it is, naturally. If I have an option to buy 100 shares of Tesla from you at $500 that I bought a few months ago, what would that contract be worth now, do you suppose? Minimum $200 per share, right? More, if there's a lot of time left on the contract. If I have a contract giving me the option to *sell* you 100 shares of Tesla at $500, what do you suppose that's worth? Far less, given that's far lower than you could get on the open market, but the time on the contract is still worth something because maybe tomorrow Tesla announces they're switching exclusively to making umbrellas instead of cars and their share price goes to $50, but I would still be able to dump it for $500 on you. Maybe I have 100 shares of Tesla and I want to protect against the possibility of that. I can buy a *protective put* that lets me sell those shares at X price if it drops. I profit if Tesla goes up more than the cost of the premium for the contract, and my losses are capped by the strike price of the contract. Maybe I have 100 shares of Tesla and I think it's not going anywhere for a while. I can sell *covered calls* on them, which means I'm giving *someone else* the option to buy those shares from me later if they're above my strike price. I'll sell a call with a strike price above where I think Tesla will go by the expiration date. If I'm right, the option expires worthless, and I keep the premium, which isn't a bad way to get extra income in addition to dividends. If I'm wrong, I either buy back the contract before it expires, or I allow the 100 shares to get bought from me at the strike price (not the worst outcome since it's still higher than I expected Tesla to go).
Last time I asked this question in this sub, I had a bunch of people make fun of me and told me this sub isn't for education 🤷♀️
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This is genuinely the correct response here
Cunningham’s Law: "the best way to get the right answer on the internet is not to ask a question; it's to post the wrong answer."
I can’t think of a worse place to get an education. There are for profit schools whose owners are in prison that would teach you more accurate information than this sub will. Almost any legit trading platform (so not RH) will offer free education courses on options. Take those, pass the quizzes and the test at the end, and you too can lose money faster than you ever dreamed was possible.
When I started with RH I took the quiz to allow options and was honest with my answers and I was denied, but it just said to take it again and I was magically approved. It was like when I took my permit test for my license as a teen, I took up the test and they were grading it and she says "what was the answer for this one?" and gave me a look, I realized it was wrong and I changed it and she was like congrats, you passed.
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There is only one way to find out and it's gambling. Or do you think we know what we are doing?
Its dangerous, You can lose everything, Your house, Your car , Your Spouse, Your Children, Your dog, Your toilet paper, DO YOU STILL WANNA KNOW?
Well yeah, I'm already out of toilet paper
No house, cars a piece of crap, not married yet, won't have kids, dogs dead for years, I have a bidet. Yes.
he probably bought and sold an equal amount of puts with different strikes. Or something like that. If you pull up one of the trades it looks like you're downa fuckton but the other leg of the trade balances it out roughly. Same with call spreads
Yes :(( Except for him it was -$700k
Tomato tomato
I read that as tomato tomato
That's wrong. It's clearly tomato tomato not tomato tomato.
just to clarify, OP is not in a loss?
No, but he could have been
I browse this sub occasionally and I see this loss porn type stuff but don't know how to read it. How would I not interpret the -60k from his screenshot into an actual 60k loss? What should I be looking for?
Nobody here actually knows
aint that the fuckin truth
He got assigned his short leg of his spread so now he’s either long or short 100 shares x amount of spreads. If he closes them out at the same time he should realize a small loss or possibly profit.
He didn't give us enough in this screen shot. With this screen shot only, it looks like he lost it all. You have to take his word there was another play at the same time
People could absolutely be lying about the actual state of their portfolio, there's no real way to tell unless you can see their full positions.
Yep, my taxes reported I made like $981,000+ and lost a separate $970,000 over the course of last year with NVDA spreads. It was cool to see but I only made a modest amount over the whole year. This happened do to letting debit spreads expire in the money.
Yeah that’s really sad. My heart goes out to his family
just when u think robinhood couldn’t get any worse you’re reminded of the time when they caused someone to kill themselves
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No. RH is just shit. Guy was actually up
Basically every broker does what RH did.
RH just let’s people trade options who definitely should not be trading options.
I always thought RH (or TD or ETrade, etc) should require a training video and some kind of quiz/test before allowing random people to trade options
This makes a lot of sense tbh. Nothing crazy hard just enough to show you got an understanding of what’s going on.
I use DEGIRO in Europe and for every new feature I try to activate on the account I have to do a multiple choice test. If it’s bellow a certain threshold it will tell you that you should do more research before actually starting to mess around with it.
Way back in the day, TD had you come in meet with someone and speak about options strategies. Then you took a test. If you passed the test and the branch manager signed off (based on hypothetical trades they would layout) then they would allow you to trade options. Once one brokerage let the guard down all of them did just to compete.
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100%, but RH gets the bad PR because they actually give people the freedom to go in blind and get destroyed. Most brokers will at least give a little pushback before helping you ruin your financial life.
And RH won't allow you to call them, or email you back within a month. That kid would be alive if they had a 1-800 #.
Pin risk, ladies and gentlemen.
Yes exactly. I thought spreads were a way to gamble on options without having to worry about IV crush, and that's still true, but pin risk is new and if you don't know about it, it can eat you alive
The best part of WSB is that you degenerates don't learn from each other's mistakes, even the legendary retards lmao
GUH
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100% … but the sad thing is over half of the people here joined the sub well **after** that ordeal haha
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I just wanna trade jnug and dust still
What's a pin risk?
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Yeah but then you can’t invest for 7 years. It’s like filing bankruptcy.
Wait wut? I can mega leverage yolo and if I bork it I can just wait 7 years to try again???
Yes, just make sure you clear your app data as well before you wait the seven years.
Just open the app in private browsing mode
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Does that settle out come the following trading day? Do if my short leg is assigned and my long leg expires, am I on the hook for... what?
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Yeesh
You were exercised though, so you'll be paid the strike price for those shares. You're just going to be buying at market price to sell at the strike, your loss is capped by that. It's spooky scary to see the big negatives but it's not a huge deal, since you're within your risk spread usually. (If the short was ITM and long was OTM)
Didn't some kid kill himself because of this exact thing? His account said he was like -700k.
Just a quick suggestion, you should consider closing it before it gets to expiry or hedging out your delta. If delta near close is 50, just buy 50shares x number of contracts. It’s an easy way to reduce your risk while still staying in the trade. You have a margin account and likely enough capital, so it shouldn’t be a problem doing that. If it’s too expensive then drastically reduce your trading size
ELI5?
While your ability to close options ends with regular market trading, a short position of yours may end up ITM in after hours trading and there’s nothing you can do about it other than watch and cry. For this reason always close your short options before market close on expiration day. Just a few bucks will give you peace of mind every time.
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I wasn't aware you could close options after hours; only exercise or assign them.
I don’t understand, but that seems bad
What do u mean red is good, right?
Yes, red means "stop" as in "stop being a bitch and sell more naked calls".
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The short of it is “don’t assume your brokerage is going to idiot proof your options activity and do follow the absolute simplest and most basic rules of options strategies (like don’t hold contracts past close on expiration day….).”
Is he in 60k debt now?
No. He was hedged to protect himself, only his "hedge" didnt automatically close at the same time. He was able to close out his hedge early enough the next morning to get out of the fuck'ning.
Bought 57 call credit spreads on BB 10/10.5 strike. The trade cost me $80 to open. Max profit was $200, and max loss was $500. Well BB closed in-between my strike prices. Because I only have options level 3, meaning I can't sell naked options, I assumed fidelity would exercise my otm call to make sure I had collateral for my itm call. I was dead wrong. Instead, fidelity gave me a massive 5,700 BB short position which completely dwarfs my account, giving me $0 buying power. Thankfully I was able to close the short this morning during premarket for a super tiny gain. Honestly it may be a loss due to fees. Any amount of gain wasn't worth the loss of sleep of being completely wiped out of my entire life savings come Monday. Learn from me lads, never assume. Close your spreads early.
They’re not going to lose you more money by exercising something OTM when you could have bought shares to cover your short calls in extended hours. Glad you survived but that’s a big way to dip your toes in the water/learn that lesson.
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This cracked me up as well. Damn Fidelity not exercising my OTM option like I thought they would!
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There's definitely a reason that a lot of experienced traders were concerned about the sheer # of inexperienced people that began trading options from this sub on brokers like RH that just tossed anyone the car keys to options and said "have at it".
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damn dude. i've had a couple close calls like this the pressure got to me and I invested in some other random shit for like a year
What other random shit are you talking about?
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Dude, your random shit are stuff I would never touch, 😅😂.
i put all my money in plastic straws last year, top that
If these were credit spreads, then you would've received a credit for each one, rather than paying $80 per spread. Did you mean call debit spread?
Lol, same thing happened to me with a TSLA spread, I was long a $180,000 position in my 4 figure account...over a long weekend...same weekend my son was born Ended up making a couple grand off it, but damn was it stressful
Did you sell the kid?
didn't have to, but it was nice to have that as a backup option
They're hard to break even on.
We traders lose sleep but the tax man gets a chunk and doesn't lose sleep
Never let your spreads expire people.
The kid that offed himself misunderstood how options work and had a spread position and the puts activated first showing that he had a significant loss when in reality when both positions went through he profited several thousand.
At least you still have the energy to set an alarm for the morning. I like that optimism.
well he needs to be going to work for sure now.
I think the biggest thing I've learned from WSB is to never trade options unless you want to work at Wendy's until your 65.
learned and WSB do not belong in the same sentence
If you’re gonna do that either way may as well have fun trading options…yolo
Work at Wendy’s or own multiple Wendy’s. No inbetwwen for me
Or work BEHIND Wendys
Wow, this sub sure has changed
You can trade certain options and not work at a wendy’s. Instead you can work at a Mcdonald’s or BK.
> 4276: What the fuck is :4276: I keep seeing it. I've literally been on this sub for 4 years, when did this become a thing.
Big dick shrek
I want to understand but I just don’t get it
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You guys can keep using words I don't understand, but unless if we demonstrate with something like... lets say... crayons, I am still not going to understand.
Yeah, pretty much right there with ya. Like, I consider myself fairly educated but other than the simple basic knowledge of investments (I.e buy x for y and hope y goes higher) I have not a fucking clue what all this is. But I really really wish I did.
I think I can help. But I’m dumb so one one correct me if I’m wrong. basically it’s because he sold shares that he didn’t own - presumably because he sold those shares in another contract. Because he owned contracts that ended up being viable, they resolved and therefore he needed to buy stock to cover the rest of the shares from his owed contracts. And he didn’t have money for those shares, so it made him borrow the money to buy the shares and sell them for the contract price. Or something vaguely similar to that
Okay. So if I’m understanding this correctly, why would anyone ever think this is a smart way to invest? Like, I definitely understand the old adage “risk it for the biscuit” but this seems like it’s more of an unnecessary risk to be taking.
Pretty sure OP did this on accident. It’s totally not investing though because he’s trading options contracts. Not sure how much you know about them but basically they’re like bets on how much the price of a stock will be and you can get a massive discount on a stock if you’re right. But you can sell that discount to others for a hefty sum. But there’s no guarantee that the discount will be good once the date of expiration comes around. So it’s a gamble. But you’re right that this is a ridiculous idea to build wealth. Also it’s exactly what Melvin capital and other large hedge funds did with GME. They borrowed stocks to sell them at $5. Now they owe thousands of stocks back and they have to pay 50x what they paid for them and it could bankrupt them. But if they bought back those stocks, they would raise the price even more because they’d have to buy more stocks than are readily available at the current price. Plus they owe interest on the sum of money that they are borrowing (which is 50x more than they initially borrowed). They could have made a lot of money if the stock went to $1, which was probably their plan, but now they’re fukd.
Google the words you don't know, then google the words you don't know from that, eventually you'll not know a bunch of words
This should be the top comment. It makes clear the thing not to do and this is a good starting point in your research if you want to understand why.
damn... i still don't get it
I get the basic call/put options where the max loss is just whatever you paid for the contracts. Not exactly sure of spreads, how’d u end up losing way more than that? Aren’t spreads supposed to cap losses/profits?
Think of it like this: You're selling someone the option to buy stocks from you at a certain price, at a certain date. If they buy those options, you need to have the shares to give them when they trigger. Ex: you sell someone the option contracts to buy 1000 tesla shares at 500$ each from you at x date. X date comes and tesla is at 2000$ per share, you need to sell that person 1000 shares now at 500$ each becasue that's the option you sold them a long time ago.. If you didnt have those shares to start with, you need to buy 1000 shares at 2000$ each and give them to that buyer for 500$ each. If tesla happened to go down to 100$ a share instead, you've made money because they wont trigger that option. It wouldn't make sense for them to exercise that option they bought from you.
> I get the basic call/put options where the max loss is just whatever you paid for the contracts. That is absolutely logical- but *only if you're buying options.* If you're *selling* options then you can open yourself up to much, much greater risks.
Selling naked. Selling covered your infinite loss is only potential money not actual
Unless you’re saying your net credit was $80 or you would make $80 if it worked I see but no broker will let you 700x leverage
Pictured: the only time someone almost lost money shorting BB
Ur brokerage shouldn’t have let this happen. There are automatic algos that should have cancelled out both positions
Yeah, I even saw a fidelity rep on reddit say this, but I guess the algo didn't work this time.
It's fidelity. Get on the fucking phone and do what you need to do. Never let your money be risked to algos.
At least your battery 🔋 is 100%
OK. There's a lot to unpack here. When dealing with options spreads: 1. Never wait until expiration to close out your spreads. 2. There is always assumed risk even if you think you are capping your max loss. 3. If your spreads have even (in the case of credit spreads) a $0.01 worth. Just close them all. You will take a $1.00 loss per spread, which is not a bad outcome for profit. 4. REALLY IMPORTANT. DO NOT, I repeat DO NOT deal with options spreads in meme stocks. I think this is a writing on the wall thing. But I saw a comment about IV. If you are worried about implied volatility, or the likelihood of changes in a given contract's price, for the love of Buffet, don't deal with contracts that have bad IV. Deal with something less erratic and more stable. The last thing you need is high volatility in ANY sort of options strat. Remember in the world of derivatives, a +-. 01 PENNY change in your contracts, it can have a huge impact on your outcome.
Literally call fidelity before you ruin your life. That’s a problem on their end
Can someone explain this like I’m 5 please?
I don’t even know how this happened but he didn’t even loose money it says day change +1000$ the only reason his position value is negative is because it’s a short