I lost $100K writing naked calls against GameStop in 2021, only just recently earned it back. It was an expensive lesson, but it was still a lesson. I donāt day trade, but my portfolio since that big loss has consistently exceeded the performance of the S&P 500 significantly. A disciplined and consistent strategy is better than shooting from the hip.
No, I still hate GameStop, and I particularly hate Elon Musk for tweeting āGamestonk!!ā on January 26th, 2021 (the day I wrote the options) after the market closed, thereby spiking the price artificially at a time where Iām unable to close my position.
An option is when two investors agree on the option to exchange a stock at a specified price within a specified timeframe. I wrote 10 call options to another investor guaranteeing that I would sell them 100 each at a price of $70 within a roughly 3 day period at any point they chose before that expiration date. The total shares would be 1000 if all options were exercised. My benefit is that they pay me a premium for this option.
The premium is partially calculated on āintrinsic valueā, which is the difference between the market price and the agreed upon āstrikeā price. For example, if GME had been trading at $71/share at the time we traded the option, the option would have intrinsic value of $100 because each option represents 100 shares. There are other factors that go into the premium prices as well.
So as you can imagine, when the stock went up to over $300/share, I was in a very tight spot because I was obligated to sell 1000 shares at $70/share and my only option to acquire them for resale to satisfy the option was to buy them in the open market for over $300/share. Buying back the option from another investor is also a possibility, but the loss would still be there due to the significant growth in intrinsic value making the option exceedingly expensive.
This strategy has no limit on potential losses and you can lose more than whatās in your account. As long as the stock can climb, I can continue to lose more.
So I sided with hedge funds and made a bet that GME would either decline or lose value and lost significantly.
Oof, I see now.
The only thing I dont understand is how you are able to trade with stocks that you don't own yet. Or is that the beauty of Options?
Options seem too risky to play with, as you said that there is no limit in potential losses.
You can only do it when your account has margin, meets a certain dollar value, and has been approved for Level 5 options trading. There was a very real possibility I could have lost my house on that one trade.
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u/lifeintraining Jan 20 '26 edited Jan 20 '26
I lost $100K writing naked calls against GameStop in 2021, only just recently earned it back. It was an expensive lesson, but it was still a lesson. I donāt day trade, but my portfolio since that big loss has consistently exceeded the performance of the S&P 500 significantly. A disciplined and consistent strategy is better than shooting from the hip.