Chicago-based Stoltmann Law Offices represents investors who’ve suffered losses from trading risky options contracts. All too often brokers recommend trading strategies that are far too risky for their clients, who end up losing a lot of money. One such investment approach is options trading, or the right to buy or sell a security at a certain price in the future. If you guess right on an option, you can make money, provided you buy or sell at the right time at the right price. But in a volatile market, which has pretty much been standard fare the past two years, the chances of guessing right are slim.
Investors lost an estimated $1 billion trading options during the pandemic, according to fa-mag.com. Many traded off broker advice or random tips on “meme stocks” from online platforms such as Reddit. These “mom-and-pop day traders” may have lost up to $5 billion when the costs of middlemen such as market makers is tallied. Worse yet, the day traders may have lost even more on “leveraged” trades involving borrowed money.
“Turns out, taking leveraged flyers on meme stocks mentioned on Reddit’s WallStreetBets trading forum is harder than it looks,” fa-mag reported, citing a new study from the London Business School. “Spurred by Reddit posts and urged on by Twitter and TikTok influencers, daily volume in bullish contracts set record after record as stuck-at-home tinkerers flocked to the contracts in an effort to juice up returns.”