I have lost a ton of money in the market. I was about $750K underwater on Tesla calls until this last collapse. If it continues till 3/21 I will be ok. That thing is a roller coaster so that's a long way off.
COVID or Post COVID a couple meme stocks took off Game Stop and AMC. There was another. I forget. They made a movie about the Game Stop one. Some roaring Kitty thing.
At the time, Theaters were shut and AMC looked cooked. It already was a mediocre company and COVID was a nightmare. Studios could bypass them and audiences were mandated to stay away. perfect timing for streaming services to whack them. DONE I think they were trading at about $1 at some point or near there. Justified.
The reddit people got ahold of it and suddenly it doubles, doubles again. Does all this super fast. Like quadruples in price in two weeks, then does it again. Gets on the news. Like many I realize this can't sustain, the numbers don't justify it. This is illogical. and ultimately the market is always logical. It's just a matter of when that logic comes to bear. How patient will investors be with a money losing AMC or Amazon or Tesla? Depends on the story Elon or others tell I suppose.
So I am thinking AMC is screwed and the only way out is to borrow. Which is a slower death. AMC is shooting up. I am wondering how I can make money off all these idiots. At this point, AMC has shot up to about $40 from nothing
I discovered that astonishingly I could sell 1 call. Thats 100 shares. For about $1 At $80. Expiring in a week or so. Meaning that if AMC doubled again, I was screwed. On the other hand, I said "you just had the most incredible run. From like $1 to $40. Do it again" I knew a lot of stupid money was buying this stock. So how much more stupid money could possibly have been out there? In other words. This is like the Chiefs winning 2 Super Bowls and us all saying "ok, now win two more in a row" Mmmm not easy.
So for an experiment, I sold 10 calls. A week or 8 days later. $1 each. 1,000 shares. $80. $1,000. A week later the stock had risen to $60. $60 is not $80. I win. Hmm, $1,000. Now I say ok, next week. What's the price on $120? Maybe it was $100. I forget whether I was making it double or go up $40 a week. The answer astonished me. $2. Even crazier. If I was willing to wait ANOTHER week. Meaning have it expire in TWO weeks? I could get about $5 a share. Time had value and clearly the volatility of this stock meant they would pay me for the risk involved. I wasn't ready for that and I sold 100 calls at whatever. $100 maybe. for $2 each. That's a 10,000 share risk. $20,000
The week came and went and I cashed in. Man this was great. I found that if I were willing to take greater risk. Like selling this call at $80 when the present price was $60? They would pay me like $5. I was scared of that.
Weird thing happened one Wednesday afternoon. I noticed that AMC was again, like $60-$70. It had been up and down a few dollars every day that week, upwardly mobile. At that point there was Thursday and Friday left in the week. The value of the calls falls as Friday 1 pm comes nearer and the stock is far away from the strike price. yet I saw that while the stock was at $70, I could get 50 cents on $85. So wait. if this thing doesn't go up $15.01 in two days I get 50 cents? So this thing has to rise about 22% in two days? Even if it goes to $85.50 I break even because I got paid 50 cents? MmMMM ok, lets do this. So I sold 1,000 calls. Yep. 100,000 shares. $50,000 And the stock did nothing in two days and it was the easiest $50K I had ever made. I think I posted about it here too.
Right about that time, the stock's acceleration slowed. BTW the numbers I am using ate examples. I remember them that way but I look at the chart now and they were very different. Not sure if there wer splits, reverse splits or what. Either way the trajectory was the same. Just the base numbers different than this story. For illustration it's easier to talk nice round numbers like $20 a share, $40 etc. The prices per share of the calls are really accurate.
So this game continued 1-2 more times, In all I cashed in about $50K twice. And $20 K maybe twice more,
Funny thing happened though. After being paid $50K for 2 days of risk? The next time, as the stock flattened, to get that $1 or $2 I had been getting?, I had to wait a couple weeks. Not one or a few days. Much more squirming
The next time or two get that 50 cents or $1, I had to take a much lower price. So now the stock instead of being $60 a share and paying me a buck if it went to $100 or $120 in the next week? Would pay me a dime or 25 cents and only if it went from $60 to $90. Suddenly we were withing the realm of real possibility of this happening and I was now getting paid about $10,000. Then $5,000 Then $1,000.
Why? Because the stock quit rising and falling and it flattened or fell. The party was over and I probably hung around for one or two dances longer than I should have. It was over. I had made a couple hundred thousand. Maybe $150K or $175 and it was fun. I was smart enough not to keep riding that pony. Get off and go home. Not always easy to knew when to say when.
The lesson? Volatility creates opportunities. See who the suckers are, where the dumb money is going and figure out a way to do the opposite. I knew very little about calls or at least naked calls. That is, selling calls on a stock I don't own. In many ways it's a form of shorting the stock. So I sat and did nothing for a couple years, that memory a fond one and thankful for the truck it bought. Our work trucks are about $150K
And you don’t think this is gambling?
I bet you check share prices on your phone even more times a day than you think about me. sc