How a 50K account was forced to buy $23 Million of SPY
This is a true story. The purpose of this post is to inform you guys of the risks of options, and also how some people can get extremely lucky.
So basically, this dude was trading options on SPY. He decides to sell 1000 put spreads at 266.50/266.00. This allows him to collect $2000 in premium with a max loss of just $50K, which is his entire account. If the stock closes above 266.5, he keeps all his money + the $2000 he made.
So what happened? Well, during after hours, the stock briefly dipped below 266.50. The puts he sold get exercised by the buyer and now this man is forced to buy 23 million dollars worth of SPY shares. And the puts that he bought to protect against this expired worthless. This is how one man's 50k account was left holding 23 million dollars worth of SPY shares.
Just to put that in perspective, 23 million in a 50k account is 460:1 leverage. If SPY dropped 1% the next day, he would be down 230k.
Fortunately, SPY opened green, which allowed him to net a profit of over $112,000 when he was forced to sell all the shares. This left him with a 200% return and absolutely no idea how he got there.
Trading options can be fun, but also dangerous. Make sure you know the risks before trying, because most people don't.
Video explanation by Benjamin on YouTube.
Story source from Reddit.
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Nice share