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This is probably more for a forum like WallStreetBets but anyway, I just lost 20k on Facebook calls. I got IV crushed then FB tanked today. Anyway my networth went from 32k to about 8-12k and I'm not sure what to do now...

Anyone have some decent ideas other than roasting me and downvoting? Thanks...

I've got these 8/2 207.5 Calls

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    What exactly are you asking? If the calls have expired, then your losses are fixed. If they have some time left, do you want to hold and hope, or try and sell them? – spuck Jul 25 at 17:33
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    @BobBaerker: I'm not opining on the trade at all -- "if it hurts when you do that, stop doing that" is good advice in a variety of situations. What I'm really encouraging the OP to do is to clarify the question. The question "Now what?" isn't an answerable question because we do not know the OP's goals, just that they're having what appears to them to be a bad day. – Eric Lippert Jul 25 at 23:37
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    @BobBaerker: The answer of Pete B. which you critique is not a satisfying answer because Pete B. has made an entirely different guess as to what goal the OP wishes to attain; Pete B. is likely interpreting the question "Now what?" as "Plainly I screwed up and gambled far more money than I could afford to lose; my goal is to get my financial life back on track by investing my surplus income prudently; how should I go about achieving this goal?" Pete B.'s answer is a good answer to that question, but it's anyone's guess as to what the question really is. Hence my request for clarification. – Eric Lippert Jul 26 at 0:10
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    @geroldastor I am trying to understand what you are hoping for. I have spent my life either as a professional investor, academic researcher, and instructor, and I do not know for sure what you want. Concerning the part of your question that says "Anyway my net worth went from 32k to about 8-12k and I'm not sure what to do now," you do nothing. It is a historical event. You cannot influence history. It falls under the concept of a sunk cost. It is irrelevant to good decision making but is relevant for your emotional state. – Dave Harris Jul 27 at 0:00
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    @geroldastor About the part of your question that asks "Anyone have some decent ideas other than roasting me and downvoting? " Decent depends on your goal. I have a ton of good ideas, but they might be irrelevant to you. If you are trying to turn back the clock and get your money back, it is improbable but not impossible, although it is reasonable to believe you will end with zero value to the calls. You probably need to edit the question so that someone could give you a competent answer. – Dave Harris Jul 27 at 0:04
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I think you are better off coming here then a place like wall street bets, where their advice would be to keep going.

Your issue is that you are speculating with very large amounts of money in relationship to your net worth. You can't afford to take those kinds of losses. In gambling parlance, you are playing above your bankroll.

First off you need to build a solid base. That is your emergency fund, that is sitting in a boring savings account, should probably be on the order of 6 months of expenses. So probably between 15 and 20K.

Next there should be a regular boring stream of systematic investments. Index funds, with probably a 80-20% allocation with 20% in a bond fund. Each and every month, boom, invested. The only thing you want to do here is re-balance occasionally (like once a year). Many people use a IRA/Roth IRA or 401K for this kind of thing.

Once you have a couple of hundred k built up, then it is okay to play some with options. I would not play that large until you are well north of a million, but you could play some.

In the end, you will tire of such activities. Losing hard earned money is tough especially when you see how easy, painless, and profitable things are with systematic index investing.

BTW, you are normal. Speculators might be encouraged by a few early wins, but one bad trade makes their initial investment and gains disappear.

So imagine this situation when you have 200k sitting in a bond fund, and an emergency fund with 50K. While it would suck, you would not be as emotionally shaken as you are now. However, at some point, you would realize that there are smarter ways to make money and not fall for a "get rich quick scheme".

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    And this answered the OP's question how? – Bob Baerker Jul 25 at 20:56
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    @BobBaerker: The OP did not ask a question that has an answer in the first place. The question "what should I do?" is not an answerable question; "what should I do to achieve goal X with resources Y?" might have an answer. – Eric Lippert Jul 25 at 22:39
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    @Eric Lippert - Au contraire mon ami. The OP presented an option position and the numbers involved. He did not ask "What should I do?". He asked, does "Anyone have some decent ideas?" That's plural as in possible ways to ameliorate the situation. Be that as it may, Pete B provided an answer and my question to him was what does his answer have to do with the OP's question? – Bob Baerker Jul 25 at 22:48
  • Are you advising him to take the loss now and exit, and then try this new strategy? If so, I'd suggest editing the answer to make that clear rather than stating what he should have done in the past. – Zesty Jul 26 at 20:40
  • @Zesty are you not able to see paragraphs three and four? The first order of business is to build an emergency fund. – Pete B. Jul 29 at 11:40
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Better $32k to $12k now than $320k to $120k later. And at least your net worth is still positive. The best response is to refocus on what your plan is. Hopefully, you have a lot of potential career earnings ahead of you and can learn from this to be more prudent with your future investments. Somehow you felt it was appropriate to engage in high-risk speculation with most of your net worth. Even if you are young and have a secure job, this is not the best idea. You should go "back to basics" and ensure you are on a stable track with an emergency fund, non-leveraged retirement savings, etc. If you want to trade aggressively, treat it as an expensive hobby that you can only afford if the rest of your financial plan is on track.

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Since you didn't ask, I'll take a pass on lecturing you about what should invest in and how you should invest.

Buying near term expiration long calls or long puts on a high beta stock just before earnings is swimming upstream. Regardless of what happens, IV contraction crushes premium. If you're going to speculate by trading earnings announcements, consider selling some offsetting expensive premium to soften the blow of IV contraction, preferably expensive near tern IV versus cheaper further term IV. Play the middle not the tails.

Under normal circumstances, if you believe (hope?) that the underlying will reverse, possible adjustments include:

  • Buy more calls to average down (never a good plan for expiration a week away).

  • Convert to a vertical by selling a higher strike call. This lowers your break even but still a good probability of a loss because you need a decent move past current strike to get close to break even.

  • Roll your long call down to a bullish call vertical where the long call strike is lower, hopefully for no additional cash outlay. Buy the lower strike and sell two of your strike (you'll STC your position and STO an equal amount of the same call).

None of these are viable for you because your position has been decimated by the combination of share price drop and IV contraction. Now it's just a question of rolling the dice on the remaining 15% of salvage value (take the loss now or see what happens in a week).

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First, let's be real, you took a very strong position on a very tight gamble. Your position size was large (proportional to networth), your timeline was short, and it seems like you went in to this trade without a clear exit strategy of when to cut your losses, or to take your profits.

Did you record your decision making process? That usually helps people to evaluate whether they are making a strong investment choice. If you were overly excited, or thought that this trade was a sure-thing, take a step back to re-evaluate why it's perfect. A great trade is not going to be screwed up by a 2% profit difference just because you didn't jump the gun the instant the thought came to your head.

Decide on your approach, your investment strategy, and find out where you set your stop loss or take your profits. Finally, while this mistake might seem pretty huge right now 32k down to 8k in total networth, there are some great lessons to be had here. You aren't living on the street (hopefully), and (hopefully) you have some alternative source of income, so your living condition isn't dependent on that single trade working out. To some people, that's merely a year's rent, to others that's their student loan debt.

In the long run, this hopefully just means that that 14k loss is a small price to pay for you to get your head on straight, and figure out how to play this investment game correctly; and not just try to gamble your way in to an accidental success.

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