I remember the morning like it was yesterday. I woke up to a text from my friend; it was right around 7:30 AM PDT. The text read,
“Dude, I just made $80 bucks this morning off of Snap puts.”
I thought to myself, one, what is a put, and two, how do I buy them? I was familiar with the company Snapchat - known simply just as Snap to traders - and had heard rumors that the company was not performing well. I texted my friend back and asked him how to buy Snap puts. This was the beginning of my largest financial mistake of 2018.
My friend quickly explained to me how option contracts work; I was fascinated at the potential upside return and really thought that I had enough of an “edge” to become a successful option trader. At first, I did well. On September 10th, I purchased $75 of Snap puts from my new Robinhood account. On September 12, I sold the contracts for a profit of $230. I had made $230 in two days right from my phone! If I can keep this up, I can do this full time, I thought to myself.
I did okay for the next couple of months. I would lose some, but then make it back quickly. This was until, December 2018 happened. At that time, I had $1000 worth of option contracts. I owned calls on Visa, PayPal, Microsoft, and McDonalds to name a few. I should have bought puts.
Call contracts are purchased when the stock is expected to increase in value, and put options are purchased when the stock is expected to decrease in value. Options get much more complicated when you are writing naked contracts - contracts that you sell without owning the stock to cover the contract if it is executed.
So, December 2018 happened, my call contracts expired worthless, and I was out a $1000. I looked back at the last three months and asked myself if trading options were worth the effort? For me, they were not. Trading options felt too much like gambling, which I do not enjoy. I decided to solely become a long-term investor and to use the two best tools in my financial toolbox - time and compounding interest.