How I Got Hooked on the Hottest Trade in Markets—and Bagged a 2,000% Return
A WSJ reporter tried her hand at trading the explosive short-dated options bets that have made financial markets riskier than ever
There’s a hot new trade on Wall Street, blurring the line between investing and gambling like never before.
It involves contracts known as short-dated options, bets on everything from individual stocks to indexes that run for just a few days, or in some cases mere hours.
Part of their appeal, and risk, is that the contracts can be like placing chips at a roulette table, or buying a scratch-off lottery ticket. There is the potential for huge, nearly instantaneous gains, or the loss of everything you put down.
The options have drawn in scores of rookie investors, many who take to social media to tout staggering wins, or moan about losing thousands of dollars in the time it takes to shower.
In my time as a reporter for The Wall Street Journal, I have never seen anything catch fire like this. I wanted to see what the hype was about and convinced my editors to let me get in on the game, something I never do as a reporter.
They gave me five days, and $500, to trade the contracts on Robinhood. Part of the deal was that any profits would be donated to charity. More importantly, the Journal wasn’t going to make me pay back any losses. And I expected to lose big.
That’s partly because I’m more of a buy-and-hold investor type. But it’s also because I went in knowing the odds are often stacked against individuals like me, with pros on the other side of these trades.
What I didn’t expect was just how easy it would be to get sucked in, or how much pressure I would put on myself to land a blockbuster trade. Most of all, I didn’t think I would fall prey to the idea that I had true trading talent rather than chalking it up to luck.
Hello, Robinhood
Armed with $500 of her employer’s money, Banerji went at it.
My experiment got off to a rough start—my first two plays were immediate busts. I scooped up options on a tiny shipping company called ZIM Integrated Shipping Services, whose shares had soared of late, and on the Invesco QQQ Trust, a fund tracking the Nasdaq-100 index.
Here’s how options trading works: You can buy a contract tied to a stock or exchange-traded fund that gives you the right to buy or sell 100 shares at a specific price, by a stated date. “Call options” offer the right to buy shares while “puts” grant the right to sell.
The contract can be exercised, or you can flip it in the secondary market. Often, the contract loses most of its value.
In my case, I made a long-shot bet that ZIM’s hot streak would continue. I shelled out $10 on a call option.
The math seemed straightforward: In the worst-case scenario, I’d lose just $10. If I was right, I imagined that initial investment could rapidly multiply to $50, $100 or even more.
No surprise—that didn’t happen. The contract almost immediately went south, and my Nasdaq bet zigzagged before ending up worthless.
I was amazed how easy it was to trade on Robinhood and how quickly—and effortlessly—I lost money. I spent much of the next few hours unable to concentrate on much else. I tried to do some research for another article, but I struggled to focus because it was too tempting to sneak a peek at the Robinhood tab on my browser to check my positions.
Maybe it was the frugal home I grew up in, but even declines on tiny trades gnawed at me. Thinking about rookies boasting about their wins on social media with rocket ship emojis made the flops sting. If they could do it, I mused, I could too.
I knew I needed to go bigger. I turned to one of the market’s riskiest plays, the ProShares UltraPro Short QQQ. It’s a triple-leveraged ETF designed to profit when the Nasdaq falls. My colleagues and I have written extensively about the danger these funds pose, yet here I was jumping right in.
Ultimately, my bold bet paid off. The position jumped around 70% within two days.
It was good. But it wasn’t a jackpot. Where were the 100%, 300% or 1,000% returns I’d heard about?
One trade away from a win
It’s no coincidence these trades are booming while online sports betting is taking the U.S. by storm. Americans flocked to DraftKings and FanDuel while stuck in isolation during the pandemic. Their popularity has only grown since.
Some customers find the platforms addictive. My colleague Katherine Sayre wrote a captivating story last month about a psychiatrist who, despite being familiar with human impulses and addiction, was unable to walk away from casino games until she lost a six-figure sum and her VIP status at DraftKings.
Robinhood and other brokers have drawn similar complaints from investors who say they are gamifying investing.
I got drawn into the game. When my account balance slumped below $500, my mood darkened, too. Fleeting gains gave me hope and kept me trading in case a more explosive return was right around the corner. And a barrage of mobile alerts from Robinhood about my positions and stocks on my watch list encouraged me to hunt for another trade.
Steve Quirk, Robinhood’s chief brokerage officer, said the firm has guardrails in place for options trading and offers contracts expiring the same day only to those who enroll. Traders can opt out of alerts, which Quirk says are designed to keep them informed.
He disagrees with comparisons drawn to gambling. Options have long allowed traders to hedge portfolios, speculate or generate income. Changing the time frame over which a trade is placed doesn’t make it gambling, he argues. Quirk compares buying a short-dated option on a stock to hedge a position around its earnings report to buying home insurance the exact week you know a hurricane is coming.
“If I buy something and hold it for a month, it’s not gambling. If I hold it for a week, it’s gambling? Or if I hold it for a day, it’s gambling?” he said.
Upping the ante
I kept chasing as the week progressed. I rode a brief rally in the Treasury market through a call option on the iShares 20+ Year Treasury Bond ETF, a position that more than tripled in two days. I fantasized about seeing the 311% return mushroom into something even bigger.
It was tempting to believe I had made a smart market call. I found myself falling into a common trap that psychologist and economist Daniel Kahneman has called the illusion of skill, attributing my performance to investing savvy rather than sheer luck.
By Thursday, my portfolio had lost around a quarter of its value. The contracts that seemed cheap when I picked them up had instead littered my portfolio with losses.
But I wasn’t giving up. I had been fairly conservative most of the week, wary of going bust too soon. With 24 hours left, it was time to go big.
I picked up an expensive lottery ticket: A call option pegged to shares of Meta Platforms hitting $440, around 11% above where they ultimately closed that day. The contract expired within 24 hours.
Meta’s earnings report was imminent, and I put my faith in Mark Zuckerberg to deliver. I was sick to my stomach waiting for the numbers to cross the wires.
Shortly after 4 p.m., the mobile and email alerts poured in: Meta had smashed expectations. I watched my computer screen in awe as the stock rocketed 15% in after-hours trading, a head-spinning move for one of the biggest companies in the world. I felt lightheaded, like I’d had too much coffee in the morning.
The next morning, I cashed in—and, wildly, the payoff was even bigger than I’d thought. Right after the opening bell, a contract I’d bought for $101 fetched $2,210. I quickly sold, locking in a 2,088% profit. In less than 60 seconds, my remaining account balance had more than quintupled to $2,410.61.
In truth, I’m not sure that I’m a natural at this. I lost money on 10 of the 15 trades I placed that week. I felt increasingly desperate to figure out why I couldn’t score in a game being played by millions—or, at times, why they were trying at all. Then I got lucky with one, and I understood.
After the market closed, I told two friends about my jackpot over drinks at an Upper West Side bar. I said I wished I could keep trading.