TL;DR
A lucky trader turned $720 into $160,000 using options, but this ‘success’ masks the inherent risks and potential for devastating losses. It’s a cautionary tale of high-stakes speculation and echoes past financial crises.
Story
The $720 to $160,000 Put Option Gamble: A Cautionary Tale
John, let’s call him that, wasn’t your average investor. He wasn’t content with slow, steady returns. He wanted a lottery ticket, and he found it in the form of put options on UNH stock. Put options are contracts giving the right (not obligation) to sell an asset at a certain price before a set date. If the price falls below that price before the expiry date, the option becomes profitable, and the further it falls, the more profitable it is. John’s gamble was that UNH stock would plummet.
He put down $720, a relatively small sum. But his hunch paid off spectacularly: UNH’s price took a nosedive, turning his investment into a six-figure windfall. The internet exploded with comments – others who knew about this potential downturn got rich as well. Some gloated. Others, those on the other side of the trade, were devastated, having lost large amounts. It was a zero-sum game where some win big while others lose even bigger.
This ‘success’ story is as much a cautionary tale as it is a testament to luck. It mirrors countless speculative bubbles—from tulip mania to the dot-com crash to the 2008 financial crisis. These events, all driven by hype and greed, lead to incredible short-term gains for some, but they always end in tears for many more. In John’s case, his risk was amplified by the leverage inherent in options trading. This means his potential profits were massively magnified, but so were his potential losses. One bad trade could wipe him out completely.
The human impact is stark. For every John who made it, countless others likely lost money betting on UNH or other similar high-risk ventures. It’s a high-stakes casino where the odds are always stacked against the average player.
Lessons:
- Never chase quick riches. Get-rich-quick schemes rarely work out. Sustainable wealth is built slowly and carefully.
- Understand the risks. Options trading is complex and highly leveraged. Only invest what you can afford to lose completely. And, more importantly, only invest what you fully understand.
- Diversify. Don’t put all your eggs in one basket. Spread your investments across multiple assets to minimize risk.
- Be wary of hype. If something sounds too good to be true, it probably is. Do your due diligence before investing.
Conclusion:
John’s story is an outlier, a statistical anomaly. While his success is undeniable, it’s neither replicable nor advisable. The path to financial security is paved with discipline, careful planning, and a long-term perspective, not fleeting moments of incredible luck. High risk, high reward is an expression that carries heavy consequences. It’s a lesson that’s unfortunately too often learned the hard way. Remember Enron? WorldCom? The 2008 subprime mortgage crisis? History shows that when unsustainable, high-risk endeavors collapse, the results are catastrophic. Don’t be one of the people crying themselves to sleep.
Advice
Avoid get-rich-quick schemes. Only invest what you can afford to lose, and spread your investments across multiple assets to minimize risk. Understand any investment fully before committing.
Source
https://www.reddit.com/r/wallstreetbets/comments/1kn90do/this_week_took_720_to_160000_on_unh_puts/