The Gamestop Craze Still Affects Those Who Are Addicted to Trading

• A year of bans, stimulus checks and colorful trading apps has turned buy-and-hold retail investors into regular users of powerful financial instruments.
• Observing daily stock price movements takes an inordinate amount of time and attention.
• How this all ends remains to be seen, but one thing is certain: retail investors will be mistakenly the target of the financial institution's fault.
• Kevin is an active Navy FA-18 pilot who invests in his spare time.
• This is a split opinion. The thoughts expressed are those of the author.
• You can find more articles on Insider's business page.

The average screen time on my iPhone is 4 hours and 13 minutes a day. It used to be half an hour. Over the past few years, I've reported half a dozen stock trades in 52 weeks. I had 20 trades in the last 5 weeks of 2020 alone.

I'm passionate about simply trading options and I am concerned not only about what it will mean to me, but also about the unpredictable impact this will have on the entire stock market.

Steal from the rich?

While I was sitting in front of a surgical ward waiting for knee surgery on November 25th, I downloaded the Robinhood app. Within minutes - and with too much ease - I linked my bank account, transferred $ 400, and was approved for options trading. I had never traded options before, but I quickly bought a single "call" option on Palantir Technologies Inc. stock, which is due to expire on New Year's Eve. 20 minutes later, by the time I checked in my personal merchandise for surgery, my return on investment had dropped by $ 80. My stomach turned.

For the uninitiated, a "call" option gives the buyer of the call contract the right, but not an obligation, to purchase 100 shares of the underlying stock at the "strike price" on or before an expiration date. For example, imagine that a single share of Ford Motor Company trades at $ 12. For a "premium" of $ 31, you can purchase a call option contract with an expiration date of May 28th. If you own the contract, you have the right to buy 100 shares of Ford for $ 13 per share (the "Strike Price") on or before May 28. If Ford trades below $ 13 at the close of May 28th, you will lose every $ 31 of your investment. If Ford is trading at or above $ 13 per share, exercise the option. However, you won't get your entire initial investment back unless Ford closes at or above $ 13.31 per share, the "break even" price.

The allure of buying call options is that if they do, you can take advantage of the power of owning 100 shares for just $ 31. Your worst case loss is only $ 31, but your potential gain is unlimited. In addition, you don't have to wait until the expiration date to exercise the contract. If Ford got to $ 20 a share tomorrow, you could work out and make at least $ 669. The value would be even higher if the market expected increased volatility in the stock price.

There is much to be done in evaluating a call option. Suffice it to say that buying an "out-of-the-money" calling option with a short time to expire is very similar to sitting on a homemade rocket. You're betting on a lot of volatility. Yes, you could “go to the moon,” to use Reddit's WallStreetBets community parlance, but the missile is much more likely to explode and splash your investment on the launchpad.

I have been investing since 2007 and have benefited the longest despite some initial setbacks Bull market in US history. My index and target date funds have done well. I had never "played" the market before. When my finance professor warned the class that options are "for risk reduction, not for speculation," I agreed. My Vanguard portfolio is growing steadily.

Lying in bed at home after surgery, immobilized with a badly iced knee, I opened up Robinhood, expecting to be wiped out. However, the numbers were light green. I was up 20%. Two days later, I watched with keen attention as the stock skyrocketed. The thin line on my screen worked its way up, hesitated a second, and began to descend sharply. I quickly sold my contract for $ 1009, a 200% gain. Confetti rained down on the app's screen. The needle hit the vein. I was addicted.

Slight successes followed. Two days later, I turned $ 80 into $ 800 to buy Blackberry calling options. Yeah, I mean the former cell phone maker who, surprisingly, is still in business. I bought options on Micron and Virgin Galactic and made $ 100 here and $ 200 there. I hit a wall in mid-December and my original $ 400 had peaked at $ 3,500.

Desperate for success, I began looking for obscure Chinese electric vehicle manufacturers, Canadian uranium miners, and game accessory manufacturers to bring my portfolio's daily performance from red to green. January turned things around. Nokia suddenly shot through the roof. Thank you, WallStreetBets.

What happens when life returns to normal?

Even now I tell myself that "that's not me". To a certain extent this is true. Without a pandemic lockdown, I would never have been excited about volatile trading. I'm sure this is also true for many of the other inexperienced and often malicious retail option traders. Lockdown, stimulus payments, and a year of distance learning have replaced any semblance of competition in my life.

Before that, I was in the military teaching other Navy fighter pilots how to win in combat. The final victory was the placement of the light green crosshair on the enemy aircraft. Now I log in Zoom three times a day. Robinhood is always open in the background, hopefully in a light green font, indicating the financial gains for that day

On the day I wrote this, I lost $ 600 as the options expired worthless. This is enough to buy a few weeks' worth of groceries, pay rent in many parts of the country, or fund 10% of an annual IRA contribution. And I didn't flinch. I was just angry, the number was red instead of green. The digits are less important than winning and losing.

This should come as no surprise. Robinhood's easy access and clean user interface appeal to generations who grew up on Xbox Live. Lock us in our homes and post stimulus checks. We're going to find a way to turn investments into a game. However, the quick dopamine hits hide the dangers associated with options and leverage gambling. The sad story of a young trader who takes his own life after an artificially high level of debt underscores these dangers.

Yes, of course this only fills a void created by lockdowns, but it may be too late to reverse course once the world opens up again. I'm afraid that going back to personal work won't eliminate the need to see Blackberry, AMC, and a stranger diabetes - The stocks of the implant manufacturers move from 9:30 a.m. to 4:00 p.m. I don't know if this new army of options traders will finally be enjoying their weekends again instead of anxiously counting the hours until Monday opens. More importantly, there is no telling what will happen to the market when enough of us can shake that habit.

One thing is certain. When the bubble bursts, retail investors who trade small amounts of money will be held responsible for manipulating the market. This ignores the hedge funds and investment banks that have been addicted to manipulating the market for decades and have much more power behind them. For the market to be "fair", these powerful tools must be freely available to all. Despite all of Robinhood's shortcomings, this has succeeded.

As investors, we then have to be ready to live with the ups and downs, the good and the bad. The perspective of what is "good" and what is "bad" simply depends on where you are operating from: the office or an app.

Kevin Sartain is an active naval officer and a candidate for a Masters of Public Administration from Harvard Kennedy School of Government. The views expressed in this article are its own and do not reflect those of the Navy or the Department of Defense, nor do they constitute the endorsement or disapproval of any company.

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