Quiet Confessions of Options Trading, Rental Real Estate, Crypto

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People are usually quite eager to share their stories of amazing wealth and riches. If you bought Apple in the early years or Bitcoin at $40, why not mention that at a party? Folks are usually much more quiet about their failures. But you can find such admissions thanks to the anonymous nature of social media. Reading these confessions can hopefully provide a clearer perspective of potential dangers.

Options trading. Meme stock mania was born as people learned the power of leveraged positions, but others ended up being the joke instead.

How do you get $100,000? You start with $700,000 and make a bunch of aggressive options trades: My losses, your gains. My unfortunate journey thus far.

That’s not even the worst part. The user admits in the comments (verified by their previous post history) that they ended up borrowing $200,000 at 10% interest:

Unfortunately I lost in options. I borrowed money and now I am paying 10% on 200k.

Assuming that is the full picture, they are negative $100,000 and the juice is still running.

Rental real estate. Many people do build wealth over time with rental real estate, but things can still go wrong. No landlord rents to a squatter that they have to evict on purpose: Lessons from a former accidental landlord…

While I’ve seen plenty of threads on having rentals at part of a FIRE strategy, I’ve rarely seen comments from experienced landlords that outline the challenges or negative outcomes that can come along with being a landlord.

I sold my rental property a couple of months ago, ending my 11-year stint as an accidental landlord. I thought this would be a good time to provide my experience. And before all the “rental moguls” show up to shit on this post, let me qualify that I am not claiming to be an expert. In hindsight there were a lot of things I would have done differently/better. However, I feel I can provide real world examples of what a new landlord can experience.

If done correctly, there can be a lot of financial upside. However, being a landlord is not as hassle/risk free as most people think it is – and there is no guarantee you will make money.

Crypto. The Twitter account @coinfessions shares “anonymous crypto confessions”. These days, there are many people afraid to tell even their spouses how much they lost betting on crypto.

I thought about these stories when reading about the growing popularity of DraftKings and FanDuel: DraftKings Is Coming for Your Dumb Money at Wrigley Field. This is not a net positive development for our society. The Chicago Cubs (and soon your favorite team as well) just can’t say no to the easy money, but also prefer to ignore where it will come from. My children will be told that gambling addiction runs in their family history (there’s my little confession) and that the best path is to never bet at all, even casually (and to never marry someone who gambles). Don’t be the dumb money.

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  1. Jonathan – just wanted to say thanks for this very thoughtful, immensely valuable post. There is no shame in making a mistake, realizing you made a mistake, changing your ways, and digging yourself out of the hole that you dug for yourself. For those that put the work in to dig themselves out it is important to share their story with others so that the next person who falls in to the same snare realizes they’re not alone, and that they too can change their circumstances. As for my kids, I will also be proactive in trying to educate them on the increasing number of financial snares that seem to be popping up throughout our society. Thanks again for sharing.

  2. Phineas Finch says

    Re: options
    Buying options (what the big loser did in your example) is not for the faint of heart. In my experience, selling options can be a relatively safe source of income. What are you doing in that area?

    • Selling options entails the possibility of unlimited losses–as in more than your account value. If the options are covered, your loss is limited to 100% of your account value, which is better, but (if writing covered calls) you are selling off your upside and keeping all of the downside.

      • You are limiting the downside to the price of options that you sold. But yes, you are selling all of the upside which usually defeats the purpose of having stocks in the first place.

        • When you BUY an option, your loss is limited to the premium you pay. If you SELL an option, you can definitely lose more than the premium you receive. If you sell a PUT with a strike price of $100 for $5 in premium, your maximum profit is $5 if the option expires worthless (the stock price is at or above $100 at the time of expiration). But your maximum loss is $100 in the case that the stock goes to zero–TWENTY TIMES the premium you collected.

          Selling CALLs is even more potentially risky. If you sell a CALL with a strike price of $100, the stock could theoretically go as high as $1,000, $10,000, or $100,000, resulting in tremendous losses.

          MB, if you are referring to covered calls–the maximum amount you can lose is 100% in the case that the underlying stock you own goes to 0. The maximum upside is the difference between the current price and the strike price plus the premium collected.

  3. Another great post, Jonathan, and I appreciate your willingness to share your personal struggles for the message to hopefully hit home with others (I wish you well in keeping it in check too). It’s been a long time concern of mine that our country is so focused on spending that we never put any real effort into educating our populace about saving. We know that massive amounts of credit card debt, title loans, payday loans, gambling, rent-to-own places, and all this “buy today, pay later” stuff is concerning, but we don’t dare do anything to stifle the economy, so we don’t ever actually do anything about it. We’re in for such a massive blow one of these days, and I honestly just hope I’m not around when it happens, but I feel sorry for those who are.

  4. I could pull a quote from Buffet to drop in here, but the emphasis of “investing in what you know” and “concentrating your investments in what you REALLY know” are forever true.

    There was a FATFire thread ~6 months ago where a commodities trader shared how he made $6m investing in coal stocks last year into this. He had knowledge that neither one of us would have.

    Similarly, real estate ‘seems’ easy but there are a lot of nuances to how local laws and being handy could make or break your investment thesis.

    If you want to invest in a concentrated manner, become an expert on it. And don’t go gambling someone else’s money.

    Jonathan, one thing I have taken from your posts over the years is to have a small portion of the portfolio be speculative. It scratches the itch and keeps you accountable – and perhaps also gives you enough of a runway to really learn a new area without gambling the proverbial farm

  5. I’d be quite surprised if it was really hard to find landlords that didn’t have problems. I’ve got my share so do most landlords I’ve ever talked to.

    The blogs and FIRE echo chamber is not really respresentative of real life in a few ways.

  6. Michael Anderson says

    My gambling story is short. Many years ago I walked into a casino and lost $20 in about 1 minute. I thought “that sucked”, walked out, and haven’t really gambled since.

    The Draft Kings story also reminded me that if you win consistently they will shut you out. So, there really is no way to come out ahead in the long term. Truly the only reason to participate is for entertainment purposes.

    The sports betting and fantasy leagues make watching a game with friends annoying too. Several of them will speak endlessly of their bets or their league. They don’t care about who wins the game, just if they win their bet. A little is fine, but it tends to dominate the conversation.

    Legal or illegal, people will gamble, especially on sports. Maybe it’s better that it’s legal, so the money doesn’t go to gangs, etc., but the casual acceptance feels unseemly to me. The rich owners of the casinos, gambling apps, and sports franchises get richer, and the rest of us deal with the consequences.

  7. Great article. People don’t really look at the downside risks until too late.

    • Andy, that’s right, I was talking about covered calls, I should have made it clear. Selling uncovered calls is for the strong of heart and wallet 🙂

  8. Yes, i’ll bet there are a lot of stressed out marriages right now with the global market being in the shitter. But, the reality is, you’ve really not lost any money unless you sell. So, if you can hang tight, and wait for the markets to rebound you’ll be fine. It will rebound, it always has and it always will. You just need to turn it all off for about the next year, then re-visit everything and i’ll bet you’ll be pleasantly surprised!

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