Sunday, June 06, 2021

Profiting from Wall Street Bets Meme Stocks

On February 2, 2021, I posted that I was Regretting Buying Bubble Stocks.  I was already down 25-50% on my purchases.  On March 25, 2021, I posted that I was having Wall Street Bets Fun buying meme stock and trading calls and puts on the same meme stocks.  I was breaking even to slightly positive at the time of that post.

Based on my experience, I decided to focus mainly on options, calls and puts, for some of the meme stocks.  Specifically, AMC, EXPR, BB, BNGO, SNDL and NOK.   I also bought some calls on WKHS, although it wasn't a meme stock at the time.   I watched the main discussion the Wall Street Bets Reddit thread for mentions of the named stocks.   As the mentions increase, I bought and sold calls and sold puts.

To note, I usually did not risk much more that the price of a lottery ticket.   In many cases  $5; sometimes $10 to $25, occasionally about $60; but never, not yet, over $100.   In about 90% of the cases I made a profit, up to 2000% in one case.   Most of the ones that expired worthless were profitable at one point, but I got greedy and didn't close the position, and watched to position go to zero.

Here's my key learning from the January and March meme stock spikes.   Avoid buying when the stocks are rocketing upwards.  Buying during significant up trends tends to cause me to buy high.   In most cases, wait until after a clear peak and significant decline.   Buying at this point, even before the eventual bottom, will lead to profits sooner at the next spike.

Another important learning:  Don't be greedy.   In my first attempt at meme options (SKT), the option went up 1500-2500% in one day.   I decided to wait for more gains, since this was right after the first GME spike.   The gains dropped, I kept waiting, and the gains dropped more.   Eventually, the option went to zero for a loss.

Finally, I only risk a very small part of our portfolio on options, usually no more than $200, or $2000 in the case of short puts, which would cause me to buy 100 shares of the stock if executed.

I've closed out most of my options, including an AMC $20 covered call which was executed last Friday, when the stock was $48.  I have couple long calls and short puts remaining and hope to close out some this week.

Disclosure:  At the time of this post, I own shares of EXPR, BB, BNGO, SNDL, NOK and WKHS.   I am long calls on BNGO and NOK.   I am short puts on BNGO and SNDL.   AMC was called away with a $20 covered call.  This week,  I may buy or sell calls on WKHS or sell WKHS shares.   This week,  I may sell current call positions on BNGO, and NOK.

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This is not financial nor investment advice. Please consult a professional advisor.

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