10th March was a strange day for me. I basically totally threw everything that I had learnt through my mistakes out of the window. The stock market turned bearish after Fed Chairman, Jerome Powell’s hawkish comments, on further rate hikes due to rising inflation data.
Elsewhere, reports have emerged on the collapse of Silicon Valley Bank and Silvergate Bank, both due to a bank run (a large number of bank customers withdraw their deposits because they believe the bank might fail).
I was bearish on Tesla and Coinbase as I believe their share prices would fall. As a result, I bought very high risk 0 day PUT options (expiring on the same day 10 March 23), hoping to profit from a collapse in the share price of both companies. A PUT option, when predicted correctly, has unlimited upside for the option buyer. I tried to adopt the strategy that I learnt from the day trading group of using short expiration date and allowing the sudden share price movement to create an exponential increase in premium price.
I initially bought one contract of Tesla PUT option contract at USD160 and it quickly ran up to USD220. I then took on more risk and added 9 more contracts at US220, making my average price of my 10 contracts very close to USD220 per Tesla PUT option contract. The total invested capital was USD2.2k.
It was still going well as Tesla fell below USD170 and my PUT contracts turned profitable. However, the market then recovered and Tesla surged to more than USD178. I did not put any stop-loss for this position, not even 50%. As the day dragged on, Tesla’s share price did not fall below USD170 and the premium fell fast as it neared the market closing time, even though Tesla eventually dropped back to close flat.
During the trading session, I had a chance to roll the contracts to following week, to a strike price of USD150 (from the original USD170) but did not do so as I was still hoping that Tesla would drop during the later part of the session. It did not happened as the 10 option contracts eventually expired worthless. I tried to repair my trade by buying in the opposite direction, with 10 CALL contracts of strike price of USD185 at a total of USD60. As Tesla’s share price was trading sideways, that 10 CALL contracts expired worthless as well.
Meanwhile, my 5 PUT contracts on Coinbase at strike price of USD50 also expire worthless as the share price of Coinbase recovered after I opened up these positions. That was a smaller loss as compared to my Tesla positions as each contract cost USD55 and I had only 5 contracts.
In total, I lose a total of SGD3,422 (USD2,535) in a single trading day, which was the biggest amount I have lost in a single day trade. The details of my trades are as shown below:
Concluding Thoughts
It was so ironic that this happened after my last 2 blog posts shared about the minimizing the risks of options trading by being an options seller instead of an options buyer, as time can work against me being an option buyer.
I also shared about the risks involved in doing day trading and that each trade has the risk of losing all the capital when due to the volatility and sudden price movement, as well as little reaction time as the contracts expire very fast.
Then, here I am, choosing to be an options buyer instead of a seller, placing high risk 0 day trades without any stop-loss and not doing anything to either roll the contract or cut loss when things do not go according to plan.
I will remember this expensive $3,422 lesson to preach what I pray and to follow the rules of safe trading or else suffer the consequences of the worst case scenarios. Also, to keep my trades small and celebrate the small wins instead of YOLO my money, hoping to win big with one lucky trade and end up with losing all my capital.
I hope this article brings some value to you and highlights the high risks of zero day contracts or day trading and that you do not follow my footsteps in making these mistakes.
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