This Options Investing Mistake Cost You $5 Billion Last Year!

Regular investors lost more than $5 billion on options investing during the pandemic, and a lot of that was hidden in fees you didn’t even see. In this video, I’ll reveal that $5 billion options investing mistake and three others investors make. I’ll show you how to invest in options the right way and share an option strategy I use to get stocks at a discount!

According to the Options Clearing Council, retail investors traded more than 23 million call options in one week last year and total daily options volume more than doubled from just a few years earlier. Researchers from the London School of Business studied options investments by retail investors between November 2019 to June 2021 and found the group lost $1.14 billion on total trades and an additional $4.13 billion in hidden trading costs!

Worse yet is that the S&P 500 surged 40% during this period meaning not only did investors lose money trading options but lost the chance to make a LOT of money just investing in stocks!

The first mistake options investors make, and this was a big one for losses, was buying out of the money calls days or even hours before expiration. What happened is options investors were buying these call options on hot meme stocks like GameStop. Those call options give the investor a chance to lock-in a certain price for the shares until a certain date, the expiration date of those options. Those shorter-term options can rise and fall even faster and if the stock prices isn’t close to the locked-in price then they can trade for just pennies. Investors got dollar signs in their eyes. The bet thousands of dollars on options contracts expiring within days that the share price would jump…and when it didn’t, those option contracts expired worthless.

The biggest mistake by options investors, the one that caused over $4 billion in losses, was not understanding bid-ask spreads. The bid and ask prices for a stock are the prices someone is currently offering to buy the stock, the bid price, and someone is offering to sell the stock, the ask price. That difference in bid and ask prices is magnified in options investing. Here we see the June call options on GameStop with a difference of $1.70 between what someone is willing to buy and the price another investor wants to pay. That’s nearly 20% of the option value! So what happens is options investors not understanding this, maybe just placing a market order to buy those options, would end up paying a huge premium on the option’s value. You could be immediately out 20% on your investment.

Watch the video for solutions to both these options investing mistakes and the third mistake, the biggest one yet!

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Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through debt payoff strategies, investing and ways to save more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps.

[JanBjerring]

Using Cash Secure Put and Covered Calls (The options wheel) 🙂

[Elaine-hrps]

I would love to learn more about selling puts and examples of some trades you would make. Thank You

[coltfoetee]

Will you PLEASE do an update on the Sofi stock. I highly appreciate your channel and your message. I also believe Sofi is a steal at the current value at it’s 1.1% book value. The CEO has bought about 1.5 million shares let alone the rest of the execs or hedge funds. It has excellent guidance with great growth potential. Everything has been dropping recently, and Sofi has been rising…

[AscensionGroup]

Can you make some videos on the european market for decent income funds/stocks? Currently getting my dividens reamed by two governments....

[nriqueog]

Woah, those are some scary numbers. Very informative video!
Cool idea for a video:
Hypothetical question: I just sold an apartment property and came away with 1 Mil, now what are my options for investing? ETF's dividends, individual stocks or a combo of the two? What is the best strategy? ;)

[martiejohnsonjr.]

Options require a different kind of discipline. This is good stuff. A simple straddle works well. Buying at or near the money?!?!?! Yikes. What's the point? Cash secured Put is smart and simple. With the volatility that will be with us for a while Options will be in Vogue. Picking good companies matters in all markets but is everything these days. Puts will be big fun soon. 😀. Also looking at some Inverse and Leveraged Mutual Funds. These assets are in fun land at the moment with the volatility. It's a Value Cost Averaging market now, I think. Good Video! In any case, for Options? It is time to buy'em and Go Naked with Options to clip some cash now and again!

[catherineoconnellkeller]

I would never do Option. It is too risky. I prefer swing trade. I want to see what is doing right that moment.

[robertpelletier]

selling puts in a bear market: until the VIX gets below 18 or 16, I prefer to wait it out. gamestop: not really a good value so nope. I'll wait till S&P rebounds, then it'll be the time to buy calls

[redhotendorphins]

I bought 221 shares of blackberry during the peak last year, no options or margin. I’m still holding those shares. It was a great learning experience. FOMO is a nono.

Edit: thanks for your wisdom Joseph

[Rainy_Day]

Interactive brokers gives the best execution price

[ron]

Options are just not for me. People need to have good experience and understanding of the stock market and the fees involved. This proved that they did not. Invest in solid companies for long term growth.

[bigfan]

Be smart about options and you can make a lot of money. Be foolish and you can lose a lot of money. Wait for the market to finish going down and buy leaps on your favorite Stocks.