Lessons From a $10,000 Mistake 

Dear traders,

I hope your Friday was more successful than mine. It was a challenging trading day with significant volatility in TSLA, AMD, and NVDA. Over the past two days, I took a short position on NVDA calls at 460, believing that there was no way it would rise 15% in such a short time. I collected a modest $200 premium, thinking it would be a good addition to a small account, covering the cost of a flight.

However, NVDA experienced a massive run-up in the last two days, with today’s gain surpassing 5%. I was forced to cover my naked calls with a $10,000 loss, which amounted to approximately 15% of my small account size.

It was devastating to realize the magnitude of my mistake. I incurred a $10,000 loss for a $200 profit. This situation highlights the inherent risks of shorting naked calls and puts, where the potential losses are unlimited, while the profits are capped at the premium collected. Ironically, as soon as I covered my loss, NVDA quickly reversed and closed below $460 for the day! ARE YOU KIDDING ME?

If I had held onto the calls, I would have not only avoided the loss but also made money. It was a frustrating experience. If you’re interested in hearing the details of my regrettable trading decision this morning, I encourage you to watch my recap.

Selling naked calls and puts is inherently risky, and I was well aware of this fact. However, I needed to experience the consequences firsthand to truly understand.

Selling premiums can be likened to the business models of insurance companies and banks. They operate on small rewards (a few percent of the interest collected) but face 100% risk if a loan defaults. This fragility is evident in the struggles faced by banks and insurance companies, resulting in losses. In my home province of British Columbia, there is only one insurance company, a crown corporation called ICBC, which incurs losses every year due to the inability to cover costs with the small premiums collected from BC residents.

If you are looking to learn options trading more systematically, I recommend joining us at the NYC event, where Ardi will discuss options trading in detail, emphasizing proper risk management.
See you in NYC!

Andrew