Lost $30,000 on a $1-Wide Credit Spread (Options Traders MUST Watch This)

  • Whatsapp



A trader reached out to me regarding a $30,000 loss on a $1-wide credit spread position they had with a maximum loss potential of less than $500. How could this happen? In this video, you will find out.

When options are out-of-the-money (OTM) at expiration, they are said to expire worthless, which is technically correct IF they are not exercised after the market closes.

Read More

However, options can be exercised a period of time after the market closes, even on the day of expiration.

Because of this, there are scenarios where options are OTM at the time of the market close, but end up in-the-money (ITM) after-hours with a large stock price movement. In that scenario, the option will be exercised by the owner to take advantage of the intrinsic value in the option that did not exist at the time of expiration.

In this video, you’ll learn how a devastating series of unfortunate events led to a trader’s very conservative TSLA credit spread strategy leading to a $30,000 loss (100% account loss) in a weekly options expiration cycle.

Please share this video with your options trading network, as this is a very important topic. It can help save thousands and thousands of unexpected losses, and potentially save lives by helping traders avoid catastrophic financial troubles.

==== ADDITIONAL RESOURCES / VIDEOS MENTIONED ====

My 2nd YouTube Channel (Finance/Investing/Other): https://www.youtube.com/channel/UCQIPHXnm7ODW0HAdfCr1yDw
@Chris Butler

Options Trading for Beginners (The ULTIMATE Guide): https://youtu.be/7PM4rNDr4oI

=== TASTYWORKS Course Offer ===

Get one projectoption course for free when you open and fund your first tastyworks brokerage account with $2,000 or more: https://www.projectoption.com/free-options-trading-course/

Learn More About tastyworks: https://www.projectoption.com/tastyworks/

source

Related posts

Leave a Reply

Your email address will not be published. Required fields are marked *

45 comments

  1. TO CLARIFY: This can happen with any brokerage firm. It's not about your brokerage because you can get assigned after-hours with any brokerage. But I do think it is messed up how long it took to get the assignment notice. It was impossible for this trader to exercise their long 409 put because they did not have enough buying power to short 500 shares of TSLA at $409/share. The assignment settled well after the exercise cutoff time. I got my time zones mixed up in some of the images. 2PM my time is when the market closes. 3:16PM as seen on my chart is 4:16PM CT. Either way, the information stands. I hope you learned something to watch out for in this video.

    If you also lost money during this TSLA expiration date and feel Robinhood was negligent in this situation, please refer to the following video and send an email to the address included within: https://youtu.be/WgNCzsKGBHs

    -Chris

  2. General rule: Never hold options to expiration, especially spreads or other complex option strategies. You run the risk of asymmetric execution during after hours trading. This can lead to devastating losses even if you think you've hedged. ALWAYS close out your positions unless you're perfectly fine with EVERY POSSIBLE OUTCOME that can happen during after hours trading.

  3. This story doesn't add up… if this guy got delivered on his shorts, then by contract, he would have an open long that would automatically be converted into long shares and his PnL would net out to the -500.

    I call BS on this one.

  4. scary. mindblowing. I knew that could happen but I had never seen an actual case. Just terrible. poor guy

  5. Dear Chris. Excellent vid. Excellent warning. Do you know which is the maximum risk an investor faces in situations such as the one you describe in this video? Is it the blow-up of the total of our brokerage account? Does it go further? , i.e., our other savings? car? house? Your feedback will be mostly appreciated.

  6. You have another option, roll forward both contracts so you have less risk and more time after 12:00 pm if I see my options are getting in the money, I proceed to roll forward to avoid any assignment during the weekend.

  7. Which broker did the trader use in this incident?
    RobinHood force closes your options positions at around 3 p.m. ET, it makes sense that they do to prevent something like this from happening.

  8. Thanks for this, I've been assigned once. But I made money on it. but I didn't even know what happened.

  9. I am glad you added a link to this video in your second "options for beginners" video. As soon as I saw it come up on screen I paused the one, and played this one. Made me very glad that I opted to watch more of your content before jumping in to options trading. coming from stocks and forex, I was already thinking about doing something similar to this, the only thing that keeps putting the K-bosh on getting a solid plan formed around having multiple positions open like this was that whole "could be assigned" mixed with the fact that each contract can be exercised for 100 shares of the stock it represents. I figured a good way to plan for that eventuality is to make sure you have enough money to cover an assignment, should it happen. It seems you can never know if, or when, an assignment will come your way, because you never know when the person on the other side of the trade is going to exercise or not. I haven't seen any videos of anyone doing it yet, but I would also assume that there are people who buy options specifically to exercise them at a later point in time, since options are a much less risky way of going about buying stocks. As a stock buying strategy I can see this being a great way to secure a position in a stock without having to actually own any of that stock. I think this is probably what happened to this person, unfortunately, and the person that exercised the options, more than likely does after hours trading quite often and was waiting for the stock price to drastically change in the after hours market. If the price didn't change, no big loss on their end, if it did change to a favorable position then they exercise the options the bought and now have a very favorable position in the underlying stock that they were already planning to be in. If any of that made sense. If my perception of the situation seems a little weird, I apologize. I have never traded options on a real account, and have only done a couple of trades, more than 2 years ago, on a paper trading account.

  10. Great video … really drives home the mechanics (and pitfalls) of the option expiration sequence. I usually close positions prior to expiration, so didn't understand this could happen … this really drives home the risks … now I really understand "gamma risk".

  11. Great content. Everyone needs more than there basic salary to be financially secured. The best thing to do with your money is to invest. Money left in savings always end up used with no returns. I started investing in bitcoin mid November 2019 with the help of a well-known professional, Mrs Lisa and the profits almost entirely funded my recent duplex.

  12. Yeah I really dislike the way they promote credit spreads as risk defined spreads and that they're totally safe. They are for the most part but if you get pinned in the middle like this, it can be devastating. The irony of this 500 TSLA assignment is, if he/she had the money to hold the shares, in the long run, they would have been fine holding them. Paying a few dollars to close the trade is always worth the risk of being assigned after hours with an expired long put to be nowhere in sight to help you.

  13. Shouldn't the 409 put excersised automatically and simultaneously by the brokerage when the short 410 put was excersised

  14. What if the trade was running at a loss until expiry, but was going to expire worthless at closing bell… Why would anybody close a trade in that situation?

  15. The first mistake was doing spreads on tesla wtf is wrong with them 😂

  16. GOOD AND NICE TÄLK ABØUT LUCIDCRACKS, TECH STILL WONDERING HOW I GIT MY 2BTC MULTIPLIÊD

  17. I'm completely new, so please excuse me if I sound dumb but… does this also affect Covered Calls going into expiration? Should they be closed before expiration as well?

  18. Can this happen though? – You set up a 100-95 short-long put spread. Stock closes on expiration date at say 98. This means your 100 short put can be exercised and make you buy the shares at 100. Does it also mean your long put at 95 is automatically exercised? Or do you have to manually take action to make it happen? If it is not automatic, what if the stock tanks over the weekend and goes down to 80, and now you don't have your long put to protect you anymore?

  19. Wow!! This is exactly what I was thinking of recently when I read about spreads in an options DIY book. Amazing to see that it has actually happened in real life.

  20. And just so if anyone wondering about early assignments due to ex-dividend dates, you dont have to worry about it when you have a credit put spreads. That's why I like them over debit spreads. Because, you are always obligated to buy if the short leg is assigned.

  21. Great video most should know before hand THE WORST CASE SCENARIO so you'll know what could happen

  22. I understand that the option can go in the money after hours from sheer bad luck. At what point, or time, will an option nearing expiration lose its extrinsic value that I might consider closing early?

  23. Thank you for making this video. This is extremely important shit… this needs to be discussed more.

  24. This is some of the most important info I've heard in a long time… very glad I watched this. It's so easy to forget about the after hour activities.

  25. The best decision I ever made in my life was investing in financial market. Trust me guys, it pays!😊

  26. hey man, im trying to find an answer to this, I had some credit put spreads today and closed out and was in the green and suddenly around 8 pm my account showed a loss of 8k. I sold to open and bought to close on Robinhood, have you had any experience wit this?

  27. Would a good options broker like tastyworks have not let this happen and execute the long put once the short put was assigned?

  28. It's strange how people talk about all the profits, they've been making through trading of bitcoin, while am here not making any profit at all. Please can Someone put me through on the right path.

  29. Does not make sense to me. So basically this is discouraging option selling. Only the big guys can sell. The small accounts have to do naked trading. Rules set by the big boys for their benefit.

  30. i sold a put on a index vix and it was excised and i bought 100 shares and instantly sold the shares the same second and lost 820 dollars… don't sell puts on index funds folks…

  31. then…what you should be teaching is credit spreads are fucking garbage.
    ill never trade them again

  32. If it works that way if long call option isnt In the money at 4pm eastern but in after hours it goes in the money they can exercise and buy those shares?

  33. NGL, Trading with 100x leverage on bitmex seems inherently less risky than options (and more profitable, at least in my experience). Especially when I can just short futures and long perp.

    It's these weird option scenarios that scare the shit out of me and make me never want to touch it.

    Guess ill keep watching for now and until it clicks more, until then I'll stick to plain old stock margin. Take it from a former Bitmex degen (who made it out alive), a little dab (leverage) will do ya.