How I Lost $150K in a Day

Title is self-explanatory, this one is wild.

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On Tuesday August 10th, 2021, I lost $150,977 between 9:30 and 9:31 AM.   $2,516.33 per second. Don't believe me?

$257,078 on Monday, $106,101 on Tuesday. This was after hitting a peak of $365,400 in February of 2021. So yes, as a 24 year-old with a $55,000 salary, I managed to lose $150K in a day, and $260K in about six months.

Lol, lmao.

Buckle up, this is a lengthy, but important story of how I made and lost hundreds of thousands of dollars in 15 months.

Background

It's December 2019. I just graduated from Mercer University, and like many other recent graduates, I moved home for a few months. I spent December and January in my childhood bedroom applying to every finance/consulting job under the sun. Anyone who has spent a few post-college months living at home knows just how boring this existence can be.

Along with updating my resume and mass-applying to financial analyst roles via Linkedin, I started browsing Reddit's wallstreetbets. This community, self-described as "Like 4chan found a Bloomberg Terminal", was the degenerate gambling Mecca of finance. Members were exploiting infinite leverage glitches on Robinhood, taking six-figure positions in options contracts expiring that week, and routinely making and losing fortunes over night.

I was fascinated.

Similar to countless other young men with too much free time, I began experimenting with options contracts. $50 on Twitter calls here, $150 on Disney puts there. I found out that two of my buddies from college, Devin and Dash, were playing with options too, so we made a group chat and Google Sheet to track our trades.

Right around this time, the stock price of a certain electric vehicle company went nuclear:

And some members of the wallstreetbets investing community were making life-changing money as a result. A mega-thread emerged where members were posting their gains, and some of the results were ridiculous, like the guy who was up more than 1000% in a few weeks, making a cool half-million.

When you're 22 years old, and you see some dipshit on the internet make a half-million by hitting some green buttons on their phone, you don't think, "Wow, they got lucky! Good for them, I hope they cash out."

You think, "If they can make $500k overnight, I can make $500k overnight."

From that moment, I was on high-alert for the next guaranteed 10-bagger.

The World Is Ending

In February of 2020, I accepted a job offer at UPS's headquarters in Atlanta. I may have left my home town, but my appetite for risk came with me.

At this same time, someone lost their sense of taste in Western China, and a mysterious virus began spreading through Asia. The wallstreetbets boys were on it. While the market was sitting at all-time highs, lockdowns were beginning in China. Then breakout cases were confirmed in Italy and Spain, and international travel screeched to a halt. The S&P 500 grew weaker, and Reddit's high rollers began taking massive short positions.

They were betting on the end of the world.

Meanwhile, I was in my first week on the job. Physically, I was "training" to be UPS's finest financial analyst. Mentally, I was thinking about becoming the next Michael Burry. I spent 90% of my time in the office absorbing market commentary, and 10% actually doing my job.

(Jonathan if you're reading this, sorry for being an inattentive employee. Best boss ever)

My three-man trading group chat had grown to include 20 people, and we were all discussing whether Covid would tank the market.

In the first week of March, I dipped my toes in by purchasing a few SPY puts: option contracts that would profit if the market dropped. Sure enough, the market did drop.

Overnight, I made $2,000, and it was eu-phor-ic. A few days later, I thought to myself, "Let's make some real money."

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With the market down about 15% from its highs, I purchased $10,000 of SPY $225 puts that would expire in May. The next two mornings, I would go to an office bathroom stall at 9:28 to watch the market open at 9:30. The prices of option contracts don't move until the market opens, and my account value would fluctuate by thousands of dollars in the first five minutes of trading. I ended the week up a few thousands dollars, nothing crazy.

Everything changed over the weekend.

With Covid effectively shutting down international travel, oil demand hit a generational low. That weekend, OPEC and Russia failed to reach a deal on oil production cuts, and on March 7th, Saudi Arabia and Russia both decided to increase oil production, despite the macro headwinds. Sunday night, oil futures fell 30%, dragging down stock market futures with them.

That Monday I learned a new term: circuit breaker. Apparently, when the market falls 7% in a single day, trading halts for 15 minutes. Volatility was nuts, few had ever seen anything like this before. The combination of Covid and oil headwinds caused the S&P 500 to fall 7.6% in a single day. Fortunately for me, I was holding puts.

Just like that, I made $24,000 in a single day. Just like that, I thought I was the next Michael Burry. To celebrate, I watched The Big Short that night. I cashed out for a week or so, waiting for the right opportunity to dive back in. On Reddit I kept seeing other traders make millions from shorting the S&P. I was itching to get back in, and then I saw Bill Ackman cry on TV saying, "Hell is coming." I was sold.

Fully believing that Hell was coming, I bought $33,000 in SPY puts. Unknown to me at the time, this happened to be the same day that the market put in a generational low. My portfolio promptly dropped back to $10,000 in two weeks.

I was sick to my stomach. How could I have blown 20-grand that quickly? How could I have been that stupid? The S&P 500 is overweight tech stocks. Guess who benefited from lockdowns? Tech companies.

I withdrew everything from my Robinhood account and added $6,000 to a Roth IRA for "long-term" investing. I had every intention of buying some index funds, holding 'em for forty years, and riding off into the sunset.

Naturally, that lasted for like two weeks. In April, my friend Jake texted me and said, "Did you know DraftKings is going public through this thing called a SPAC?"

Special Purpose Acquisition Companies

I didn't know anything about it, so I spent the next couple of days researching SPACs and the DraftKings deal.

SPACs, or Special Purpose Acquisition Companies, offer private companies an alternative method of going public. In an IPO, a private company pays a bank a lot of money to help them go public. The bank helps them price their IPO, and several months later the private company raises money by selling new shares on public markets.

SPACs invert this process. A SPAC is basically a publicly-traded bank account. SPACs raise money from private investors before listing on public markets, typically at $10 per share. A $500M SPAC would have 50M shares trading at $10, for example.

These SPACs go find private companies and say, "Hey company XYZ, we'll give you all of our money for a % of your company, and when the deal closes, you'll be publicly traded." If the $500M SPAC negotiates 10% ownership in company XYZ, the company will be worth $5B at deal close.

The cool thing about SPACs is that you and I can buy shares in the SPAC, and our shares will convert to shares in the new company at deal close. We can also redeem our shares for $10 cash before the deal closes, putting an effective "floor" in the stock price before the merger. If investors really like the stock, the SPAC might double or even triple pre-deal close. This price increase will transfer over post-merger. The stock price of DEAC, the SPAC that took DraftKings public, increased by about 50% before the merger, for example.

SPACs also have warrants. These warrants function as five-year call options with an $11.50 strike price; if the stock climbs past $11.50 and you own warrants, you can exercise and buy shares for $11.50. These warrants are typically worth a dollar or so when shares are $10, but they quickly increase as share price climbs.

Sorry for the lengthy explanation, but it was important for understanding what follows.

I didn't buy DraftKings or DEAC, but I did notice two things after their deal closed:

• Buying at $10 would have been a risk-free bet with unlimited upside

• As the stock climbed from $10 to $20, warrants jumped from $1 to $9

SPAC warrants, if purchased cheaply, were free money. My appetite for risk was back.

The World's Worst EV Company

DraftKings had already doubled, and I knew that mathematically, buying SPACs near $10 would minimize risk and maximize upside. "What is the next SPAC that might double?" I thought. 

Enter: Nikola Motors

Nikola, an electric/hydrogen-powered semi-truck startup founded by Trevor Milton, was going public through a deal with VTIQ. With EV euphoria at an all-time high thanks to Tesla's meteoric run, I knew this was the one. I didn't care if the valuation, business model, and founder all reeked of fraud, people were going to FOMO into the "Tesla of semi-trucks".

I went all-in on VTIQ warrants with my $6,000 Roth, and I flipped them for a $12,000 profit before the deal closed. Unfortunately for me, NKLA warrants hit $40 post-merger as the stock price FOMO climbed to $90. Left about $90k on the table.

Boom, $18,000 portfolio. I joined a SPAC-focused Reddit page, and a group of us later created a Discord server to track all things-SPAC. We had bots that would scrape SEC filings for SPACs. We had different channels for every SPAC on the market. We even watched for website changes that may reflect targets had been found.

We noticed that Spartan Acquisition had updated its website header from oil drills to windmills, and we loaded up on SPAQ warrants as a result. Two weeks later, they announced a deal with Fisker Automotive, another EV startup. In a few months, I had climbed from $6k to $49k.

I WAS BACK BABY.

I kept parlaying my warrants till I hit $150k, then I started trading shares exclusively. While the upside with warrants was higher, I knew that shares had a $10 floor. I could minimize my max-loss on any trade with ease. I would buy below $12, and sell before they hit $20 every time. This led to me missing some $40+ climbs from companies like ChargePoint and Lucid, but by February 2021 I had amassed $400k (Roth and other brokerage accounts combined).

February 2021 was also the peak of the SPAC bubble. CCIV had climbed 500% on nothing but a rumored deal with Lucid, and a new SPAC was hitting the market daily as everyone and their mother wanted to cash in on the SPAC hype. Then the bubble popped, and many investors lost 90% of their gains.

Not me, though. By staying disciplined with my purchase prices, I only lost a few thousand at first. Unfortunately, I got greedy. With some SPAC warrants falling 80% or more, I decided to get back in the warrant game. The thing is, an 80% decline can continue declining.

I lost around $100k in a month or so by purchasing warrants too soon. Fortunately for me, the market did stabilize, and I clawed back to my peak. But the bubble was done. There were no more overnight 300% gains, because there were too many SPACs and not enough liquidity. My portfolio bounced around between $300k and $400k from April 2021 to July.

Now let's take a step back. I had effectively turned $6k into $400k as a 23 year-old. That is absolutely, positively, ridiculous. I could have moved $350k into index funds, pulled out $50k, and balled out for a year. I could have bought a new car. I could have done a million things and still had $350k in tax-free dollars compounding in my retirement account for the rest of my life.

I effectively won the money game before most ever get started.

But that's not how this works. That's not how this has ever worked. 

When you have mastered the market at 23 years old, and you're up 6000% in less than a year, you don't think about wealth preservation. You don't think about how ridiculous it is that you just made enough money to buy a house with cash. All you think is, "Damn, I'm only a 150% gain away from being a millionaire at 23."

After all, what's 150% when you're up 6000%?

So you keep trading. And that's where my head was. I thought I was untouchable, my strategy was infallible, and I would never have to work another day in my life. My "plan" was to hit $1M, then cash out, because if market returns maintained their historical averages, I could make $80k+ per year just from my portfolio compounding.

I was one 150% gain away from saying "check mate" to the labor force.

Mr. Market has a funny way of humbling people like me.

I really wanted to hit that $1M level, but the SPAC trade wasn't working any more. Three months of chop is an eternity when you made 6000% in the previous 9 months. So I decided to invest in a former SPAC, Katapult.

Katapult was a high-growth, profitable buy-now, pay-later company trading at a ridiculous discount to peers like Affirm. I figured that the market was overlooking it, and it would eventually double or triple to reach its fair value.

So naturally I bought $300k+ of Katapult warrants. No floor, no risk management. The art of the YOLO. While it was volatile, my portfolio hung around $300k or so for a month. Katapult had its earnings coming up before the market open on August 10th. Earnings are scary, especially for former SPACs.

Unlike companies that go public through IPOs, companies using SPACs are allowed to give future financial projections for the next X number of years. This is a great method for drumming up investor interest, but it can also create a difficult benchmark to clear once the merger closes.

I personally thought Katapult's projections were conservative. Even if they had an earnings miss, the stock was so cheap that it was already priced in.

I woke up at 8:30 AM that morning, and the stock was down 25% and dropping in the premarket. As it turns out, an earnings miss was, in fact, not priced in!

It also turns out that warrants are less liquid than shares.

I owned more than 100,000 warrants, and only 10,000 volume had traded in the premarket. I also knew that as soon as the market opened, they were probably going to drop by more than 50% as everyone rushed to sell. The order book on TD Ameritrade showed a bid for 38,000 warrants at $1.60, which signified a 35% loss from yesterday's close.

I took a deep breath and sold 38,000 warrants at $1.60. My sell cleared out the order book, the price tanked, and I liquidated the rest of my warrants for $1 or so at market open. $257K to $106K in a matter of minutes. $365K to $106K in a matter of months. If I had just bought the SPY ETF in February, I would have been sitting at $440K that August. Funny how that works.

Aftermath

I was visiting one of my friends, Tucker, in Pittsburgh when this happened. I yelled a few profanities, and he came out of his room to make sure I hadn't jumped out of the living room window. I took my remaining money, went all-in on SPY shares, left my phone on the table, and hit the gym for about three hours.

Best workout of my life.

I have not made a single stock trade since, and I will probably be a passive index bro for life. Ironically, losing $250K was the best thing that ever happened to me.

Why?

Because for 15 months, the market controlled every aspect of my life.

I would wake up in the middle of the night and check futures. I refreshed my TD Ameritrade app every five minutes, because I always had hundreds of thousands of dollars at risk. Every conversation with my friends, family, and girlfriend returned to stocks, because the market was the only thing I cared about. Thank God we worked from home, because I would have been fired in a week if my bosses had seen what I was really doing all day.

I might have been a quarter-milly poorer, but I was finally back in the driver's seat. And the craziest part about it? I was still up more than $100K in a year and a half. Not too bad.

I started writing, a lot, and writing has now become a primary income stream. I quit my job, sold my car, and backpacked Europe for four months. I enjoyed that experience so much that I followed the Euro-trip up with a six week excursion to Argentina. There's no way I would have been able to immerse myself in those experiences if I was watching some lines on some screens all day.

To the "Future Millionaire Traders" Reading This

You're not going to become a millionaire by trading. Statistically, it's just not going to happen. I mean sure, one of you might. But the other 4,400 won't. Now that I've been out of the arena for several months, I have a much clearer perspective.

Opportunity costs are the driving force behind every decision that we make, and the opportunity costs associated with trading are heavier than most. Why? Because trading is an all-consuming activity that leaves little time for anything else.

Maybe you only trade for a few hours during the day, but the market will plant roots in your subconscious. You'll be thinking about it, even if you aren't actively playing it.

Trading is also an acutely specific skill. Imagine spending five years trading full-time, and then you decide to pivot to something else. Where are you going to go? Who's going to hire you? How does this skill translate to... anything else? How are these bullet points going to look on a resume?

• Generated 1,000% returns trading cryptocurrencies

• Made $100,000 playing the SPAC bubble

• Flipped JPEGs for $50,000 gains

Cool stories to tell your friends (they're actually not. I can assure you, from personal experience, that your gains stories are just annoying), but no one else is going to care. And that's if you are part of the small, small minority who is actually "good". 

But most traders aren't good. And it's almost impossible to know if you're good anyway. Nick Maggiulli wrote a great piece about this very problem last year.

"You shouldn’t pick stocks because of the existential dilemma of doing so. The existential dilemma is simple—how do you know if you are good at picking individual stocks...

For example, any competent basketball coach could tell you whether someone was skilled at shooting within the course of 10 minutes. Yes, it’s possible to get lucky and make a bunch of shots early on, but eventually they will trend toward their actual shooting percentage...

But what about stock picking? How long would it take to determine if someone is a good stock picker? An hour? A week? A year?

  Nick Maggiulli

So we have an all-consuming activity, that is niche, where it is difficult to gauge your ability. And to top it all off, outperformance is almost impossible.

At best, you make money through a time-consuming, stress-inducing activity that most people won't care all that much about. At worst, you waste a ton of time not making money or developing other skills.

And even if you do outperform, is a few percentage points of outperformance worth the time and effort involved? How much less effort would it take to double your income and invest more money at a slightly lower return? The end result would be the same.

- Jack 

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