Reddit User Lost $140,000 from HOOD Options

Bryant Le

Robin Hood was the legendary bandit of England who stole from the rich to help the poor. Unfortunately, investing in Robinhood ended up costing this one retail trader $140,000...

Many individual investors — many of them, followers of a popular, juvenile, foul-mouthed Reddit page called Wall Street Bets have gambled their savings for the chance of massively beating the stock market. One reddit user, u/Motor-Mud-9060 gambled about $140,000 into Robinhood options. (Source found here.)

When HOOD was opened to the public on July 29, the price soared from $38 per share to highs of $85 per share within days. Buying HOOD during IPO would have returned over 100% gain on the investment in less than a week. However since then, the price of Robinhood shares have been on a downward trend. The most recent price per share, as of December 13th, is $19.70, which is down 78% from all time highs of $85 per share.

Unfortunately for this Reddit user, they caught a falling knife. And not only did they try catch the falling knife, but they did so with options...

In contrast to buying shares of Robinhood, buying options means that the user has bet that Tesla prices will massively move and would significantly higher or significantly lower than a certain out-of-the-money price by a given expiration date. (This is a lot of conditions to check off.) Call options are options with the anticipation that the price would go up, and put options are options with the anticipation would go down. You can learn more about options on Investopedia.

The benefit is that the potential gains are unlimited; however, the downside is that the entire investment can potentially be lost if:

  1. The conditions are not met by the expiration date.
  2. There is a decrease in implied volatility, meaning that interest in the stock has died down. You can learn more about implied volatility on Investopedia.
  3. The expiration date is approaching or time decay as the upside for your option becomes more risky.

Not only has this Reddit user bought Robinhood options that expire in December, but this Reddit user has continued to buy options as Robinhood continued to decline in price per share and in interest. So far, this user has lost over $140,000 with some of the losses locking in this upcoming Friday (December 17th.) Despite buying both call and put options, this Reddit user has lost money on both investments due to implied volatility and time decay.

Hopefully, these future options expire in-the-money for u/Motor-Mud-9060...

As always, invest with what you can lose. And none of what I provide is financial advice.

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