Millionaire Daydreaming (Part 1)

A lot of people say, "If I just won the lotto - it'd be so nice".

And they like to daydream about what they would do with all the money they won.

How they'd quit their job, buy their dream car - the works.

I have the same dreams, but unlike the lotto ticket winners I see the big money in the market. Every once in a while I'll see trades where I say to myself, "Wow, if I had put in a few thousand dollars in to this trade I would've made a lot of money." Of course that is all backwards looking - which is the beauty of it all. It keeps me daydreaming.

Recently I saw one of the largest pops I've ever seen from a trade. But I'm going to be as realistic about it as possible. In my wildest dreams the amount of money I could have made from this trade is roughly $4.4 million before taxes.

But I've only caught the bottom and top in a trade a few times. And never at that magnitude.

I was having problems posting to the blog and since this is something easy for me to write I decided to go with it.

Last week was one of the most volatile weeks I've seen in the market since I've been following it. Financials were getting crushed. Goldman Sachs (the company that this trade is on) had fallen from an average price around $140 a share to around $100. On Wednesday, September 16th I mentioned to my friends that I couldn't believe that GS had fallen below $100. It was a great buy then. I don't know what the options movement would've done but someone could've made a quick chunk of cash as GS closed easily above $100 on that day.

Thursday was worse. Down, down, down it went.

The low it hit on Wednesday was $97. So I would've gotten in around $95 on the $100 call option. I usually wait until a stock breaks below a previous low to jump in. I think a lot of people do this - they wait to see an imaginary support line broken before they make their move. And I would have, putting in about $2500 in to the $100 call option at $1.25. 20 contracts.

And yet the stock continued to slide. Over the next 50 minutes GS went from $100 to $86. My option went from $1.25 to a low of $.40. The way I buy options though is I like to average in when I'm losing. And I average in by doubling my positions at lower costs. For some reason I like to double my option postion after I've lost 20% on it. The option would've blown through my $1.00 limit order and left me cringing down $500 on the trade and 40 contracts deep.

And once I get that deep I like to reach for whole numbers in contract size. Chalk it up to my OCD. I know it's weird but it just looks better to me. The contract then moved through my "half point" at $.70 and I'd pick up 60 more contracts now to give me a whole number of contracts at 100 and down $1700 on the trade. At a contract price this small I sometimes continue to double because it's not much further from $.70 to $0.00.

So throw on another double of my contracts to bring the total to 200 at $.55 and then another 200 contracts when I can't believe my bid gets hit at $.45 and the bids go as low as $.40. At this point I cannot believe I am in this deep. I am sweating in my chair not focusing on anything else other than the tick movements on the stock, miniscule moves of $.13 up and down and whispering profanities under my breath. I just sent the wife an email telling her that I am losing my ass and I am looking for guidance.

The world has gone numb to me and everything just is just a bit more muted. I am now in to the $100 GS call GSIT for 400 contracts at an average price of $.72 a share. In the option now for a total of $28,700 and down $8,800 on the trade. I've got my finger on the sell trigger ready to get rid of 100 contracts at $.35. Just hid that bid and I'll get out.

And suddenly everything starts to turn.

Goldman starts to lunge upwards...Suddenly we've blown through $90...then $94...$96...oh it seems to be cresting a bit.

I've hit the "positions" button to check my option again. In a span of 20 minutes the option's tripled from $.40 to almost my original buying price of $1.20. Wow. I'm up almost $20K on my 400 options. Got to get out...have to reduce exposure. But I'll wait. I'll wait for at least a double before I let some go.

I check back to my watch list and GS is at $98.

I can't believe this. I rode it all the way in to the bottom and stuck it out. I want out of 50 contracts. Maybe 100. Maybe I'll wait until I'm in the money. Yes, I'll do that. Get me out of 50 contracts when I'm in the money.

And there it went. It moved so quickly upwards that I ended up selling 50 contracts at the market for $2.65 a contract when GS flew through $100 up to $101.38. Sold for a profit of

There I was. Shocked at what I was doing. Just locked in profits of $9600 before taxes and still had another 350 contracts profiting me another $65K.

And yet the stock continued to rise. $105...

And closed at $108.

The option closed at $8.90. I had 350 contracts that had gone from being worth $25,200 to now being worth $311,500. I couldn't sell. I didn't know what to do with myself going in to the close. It moved so quickly from $30K to $100K that I was stunned. I kept hitting the preview order button and the option wasn't keeping up with the underlying price...the ask kept going higher.

I couldn't focus on work. I wanted to run and scream about what I had done. The dog didn't understand so I had to wait until the wife got home so I could show her. I told her I had a surprise for her and she didn't understand when I was pulling out the laptop and signing in to Zecco. I couldn't even mask my excitement.

So we went out for dinner. We dressed up and went to the nicest Seafood place in town - Hank's. Or at least that's what we had been told. We both got market priced dishes and felt pretty ridiculous knowing that on paper I had just made $300K dollars. Enough to live off for a long time. We didn't talk about anything else but that and when I got home on a full stomach and almost a full bottle of wine I still couldn't sleep.

Of course, given the weeks movements in the market I was definitely worried about what was going to happen Friday morning. But at the least I knew I could pull out of this making at least $80K. I hoped.

I finally got to bed around 1:30 AM that night, but I still tossed and turned. I don't remember what time I ended up falling asleep but I remember thinking I'd like to pull out all the money in one dollar bills just to feel that enormity of cash in my hands. It seems silly, but for a kid who's never seen that much money before - you've got to understand.

The next morning the first thing I did was to turn the TV on to CNBC like I normally did. The wife ended up working from home since we had a late night the night before - and she wanted to see what happened with the money this morning too.

I screamed.

"Honey!"

"What?"

"You're not going to believe this."

"Oh jeez...what?"

I dropped the remote. My jaw dropped with it.

On CNBC they had announced that this morning the SEC had come out and announced a ban on short selling of almost 800 different securities. A majority of them financial. And one of them was mine. I watched GS scroll by on the ticker at the bottom of the screen. GS 300@$139.40 +31.40.

Someone just short covered my stock up to almost $140. I could not believe it. An overnight move of more than 30%. How did what happened yesterday get that much better? How is this possible?

I signed in to Zecco to make sure I still had the 350 contracts and it wasn't some mistake or I hadn't sold all of the contracts with the first 50. No. They were still there...and still worth $311K. Seeing that much green next to the +1236.11% number made my cheeks hurt from smiling so much.

And still the opening bell was 2 and a half hours away. The market was going wild, up over 400 points and it seemed like shorts couldn't cover fast enough.

"Want to go out for breakfast?" I asked my wife. So we ended up as one of the first couples to arrive at one of our favorite breakfast spots - Seabiscuit, a small family run place about a quarter mile from the atlantic.

After an excellent breakfast we went to walk on the beach because I still had time before work - and before the market opened. We didn't say much. Just held hands and walked through the waves that washed up on the beach.

On the way home we talked about what we would do (more on this in part 2). As soon as we arrived I was signing in to Zecco - about 20 minutes early. And I watched as all the financials were popping. Everything across the board that had been beaten down were now part of a short covering rally. Overnight from trough to peak GS had moved over 60% and my option was going to move at least another 4000%.

In the background the TV was blaring CNBC. Every day I have it on - mainly just for the noise - but this time around I had the volume turned up - making sure to catch the opening bell. Then I heard the countdown...and the bell rung.

Usually options take 3-5 minutes to get trading. Sometimes after big news the option markets open up immediately. Given what had happened overnight as soon as that bell rang and I hit the "positions" button my option changed. I had a plan for selling. I wanted to get most out right away. GS had opened up at $142 so I knew my option had to be worth at least $40. I typed in my limit order to sell 200 contracts at $40, I placed the order and it immediately filled at $43.50. An overnight profit of over $850K on those 200 contracts.

150 contracts left and I knew I wanted to get out at a lowest $35. I watched GS top near $145 and immediately start coming down. The rush of people wanting to get out at that price was huge. And suddenly we broke $140. And that's when I knew I had to get more out. I hit a market order for another 100 contracts. Executed at $39. A profit of over $380K on those 100 contracts.

Already GS had fallen off it's highs and continued to tumble. We were through the major move in GS for the morning. It was 10 AM and I was sitting there thinking about what my purchasing power would look like tomorrow morning. Over 2 million dollars in buying power would look ridiculous to me. I kept saying that to myself again and again to hopefully make this try and sink in. Not that I needed to. I'm sure as soon as the euphoria wore off the reality of having made that much money would sink in.

I sat back, and set a stop limit (which I hate because they only work for me about 30% of the time) at $35 for my last 50 contracts. Then I immediately canceled it when the option easily "jumped" my price down to $34. Get out get out get out I was saying in my head as I was typing in the option name and hitting preview order for a market order...crap, $33.50 now bid..."send order" - executed at $33.20.

And that was it. It was all gone. I no longer had any dollar signs or green percentages on my screen. Just a blank slate staring back at me almost mocking me in a way that said, "Nothing really just happened here."

But it did.

I started the morning making a little over $9,500 from the night before on my sale of 50 contracts.

For the rest of the 350 I sold for profits of $850K on 200 contracts, $380K on the next 100 and on my last 50 contracts a profit of $160K. All in total a smidgen over $1.4 million dollars. Overnight I had become a millionaire.

I wondered to myself if many of the "successful" traders had gotten their start this way. How many of them had had one HUGE day and then had the confidence to just trade with that money from there on.

I had so many plans...so many things I wanted to do with the new found windfall. I'll be sure to map them all out for you in Part 2.

(Author's note: This post was not proofread. Therefore, if I've switched tenses or points of view or made any sort of error, I apologize.)