What I Learned When I Lost $50K on My First Trade…

by Options Sensei |

It was a long time ago.  I was working for my father’s firm running trades for the brokers. I had saved my money from college and working. I decided that it was time to put on a trade for myself. I searched the financial press, studied charts, and researched everywhere until I found a “sure thing!”  I was going to knock this one to the moon.

United Airlines (UAL) was merging with Northwestern.  There was no way the stock would go down…

The merger was very bullish for UAL. So, I sold 150 Put options for $1.  Ten contracts, so I collected $1000.  The 150 puts were so far out of the money, and I figured there was no way the stock could ever go that low.

Two days before the Puts expired the merger was canceled and UAL tanked. By the time I was out of the trade, I had lost $50,000!  That was painful for a just an out-of-college kid back in the ’80s. I licked my wounds and started over…. And I learned a valuable lesson.

You ALWAYS want a limited and well-defined downside.

And it’s easy to get if you structure the trade correctly.  Had I used a spread instead of selling naked puts. I wouldn’t have collected quite as much premium, but I would have been able to limit my downside – so I didn’t lose my entire nest egg at that time in my life. One of my favorite trades is a strategy I call the Main Street Derivative.  It lets retail investors mimic a strategy used by some of the richest investors on Wall Street to add to their gains and reduce their downside.

The cool thing about the strategy is that you don’t need a lot of money to use it and you have a well defined and limited downside.  That’s why it works so well for Main Street investors.  If you want to make Wall Street money with a Main Street account, go check it out.

To Your Success,



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