Gather around the campfire children for I have a story to tell. It was a dark and stormy night and Reddit user 1R0NYMAN had hatched the perfect plan to achieve vast wealth. He found a golden opportunity and would soon execute the legendary “box spread”. The plan was foolproof; there was no way he could lose. It would basically be free money!
As you can probably guess from the title this plan didn’t exactly go as planned, but surely it couldn’t be that bad, right? I mean it was supposed to be free money! Wellll….
I heard about this story from the Wall Street Bets subreddit where people notoriously make incredibly risky investments. They appreciate big gains but major losses hold a special place in their heart and are revered. 1R0NYMAN was treated as a god after posting about this experience.
By the way, he only had $5000 invested and miraculously managed to turn that into the $57,989.57 loss seen above. That is next level bad luck. So what exactly did he do and what went wrong? Reddit user Donald_Trump_2028 offered a simplified explanation.
“He bought 4 different types of options that gave him a $300k credit. At the end of expiration like 2 years from now, he would’ve collected $40k or $50k. The way he bought it was set up like a hedge, so it didn’t matter if the stock went up or down because he had options that covered him no matter what.
But then 283 of those options were exercised by the guy on the other end of his trade meaning he had to come up with 28,300 shares of that stock which he didn’t have. I guess then Robinhood took the liberty of exercising his call options to pay for the options that got exercised from him and then it was just a whole sh*tshow after that.”
I’ve said before that options can be insanely risky investments and here we have Exhibit A. I guess I have to give him credit for thinking outside of the box though. Sometimes in life you have to take a leap of faith and just go for it… but this isn’t one of those times. This was more of a belly flop of stupidity than a leap of faith.
Let this be a lesson to all aspiring YOLO’ers out there that the worst case scenario can and sometimes will happen. I’m just saying maybe you should take a step back and consider the risks of your potential investments before diving in. I know that’s not as much fun, but you know what is fun? Not losing $58,000. If you ever need any more inspiration to not do that risky investment then head over to the Wall Street Bets subreddit. I’m sure you’ll reconsider after seeing this example isn’t exactly rare.
When looking at potential investments you should always ask yourself “how can this go wrong?” and then expect the worst and plan for it. If you couldn’t recover from a worst case scenario then don’t go through with it. Watch out for tricky situations like the one above too. The saying “only invest what you can afford to lose” doesn’t quite cover it. He only had $5,000 invested but ended up being $58,000 in the hole. Maybe he could afford to lose the $5,000 but losing $58,000 is pretty rough for anyone. Just say no to YOLO.