MW I paid $20,000 to learn hard lessons about trading options

By Joseph Adinolfi

Read this before putting your money on options trades. Plus: Money tips from readers like you.

Trading options looks lucrative - but here's why you need to do your research before you grab the bull by the horns.

Welcome back to Don't Short Yourself, where we help you make smarter decisions with your money by cutting through the noise.

This week, we're looking at stock options - and whether they're a good idea for the typical investor.

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- Joe Adinolfi

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BIG MONEY IDEA OF THE WEEK: Most investors shouldn't buy options

The promise of quick winnings was what inspired me to try my hand at trading options. Back in 2021, between stints at MarketWatch (where the staff are barred from actively trading in financial markets), it seemed like everybody around me was making money trading on Robinhood. I decided to give it a shot.

Looking back, it was a costly lesson in risk management. I'm hoping that sharing my experience might inspire other investors to tread more carefully.

For those who aren't familiar with options, here's a quick introduction. The options market allows investors to place a bet that a given stock or index will move past a set price on or before a specified date. It is sort of like betting on a horse race or a sporting event, but instead of betting on a horse or a team, you're betting on the short-term fluctuations in a given stock or index.

Options were originally designed to allow professional investors to hedge their portfolios and more effectively manage risk. But academics who have spoken with MarketWatch say that these days, investors mostly use them to speculate on where a stock or index will trade.

Although investors can trade options on brokerage platforms such as Robinhood (HOOD), an options contract is a very different beast from a stock. Stocks and exchange-traded funds generally don't lose 100% of their value in the span of a week or a month. If you buy a stock and its price falls, you can simply hold it and hope it bounces back. When investing in the stock market, time is your friend. The opposite is true with options. From the minute you purchase an options contract, its value starts to erode - a process that traders call "theta decay."

I started with a couple of trades in early 2021, just as the original meme-stock boom was taking shape. I focused on contracts tied to Roblox $(RBLX)$, Palantir (PLTR) and other stocks that were retail favorites during the pandemic-era market boom.

Most of my trades involved weekly options contracts due to expire on Friday. One of these initial bets hit, resulting in a nearly $5,000 windfall. I spent the rest of my brief options-trading experiment chasing this quick money. By the time I decided to give it up, I had lost about $20,000 in total. Looking back, it appears I made a classic investing mistake: confusing my good fortune for skill.

That loss was painful - and not just because of the money, but because of the hit to my pride. Since then, I've seen plenty of people posting about even bigger losses on social platforms like Reddit (RDDT). I've even interviewed a few investors who lost everything on options bets.

Since Robinhood helped popularize commission-free trading, introducing a new generation of investors to buying and selling securities on their smartphones, trading volumes in U.S. equity options have exploded. Overall volume hit a record in 2025 for the sixth straight year. Nonprofessional individual investors have driven much of the increase, according to data from Cboe Global Markets, a major operator of options exchanges.

Back then, it seemed like everybody was making money in the market. The original meme-stock craze was in full swing. In 2021, I remember buying call options on shares of Palantir when it was trading at around $20 a share. I kept buying weekly calls, hoping to profit once shares swung back above $25. Yet the stock kept sinking lower and lower. If I had taken the money I spent on options premiums and instead invested it in shares of the underlying - or even stuck it in an index fund - I'd be sitting on some pretty healthy gains by now.

When it comes to trading options, one thing investors need to keep in mind is that if a trade doesn't pan out, you'll likely lose all, or most, of your initial outlay - and possibly more if you're trading options using borrowed money. In a sense, these products blur the lines between investing and gambling. So if you're going to trade options, please, do your research first. Familiarize yourself with the analytical tools that most brokerages now provide free of charge. They can at least help you better understand the risks, even as you aim for a winning bet.

KEY MONEY READS

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President Donald Trump says tonight's State of the Union address will focus on the economy. Here's a look at where his affordability proposals stand right now.

Americans are looking forward to bigger tax refunds this year - but many won't be treating themselves to a shopping spree. Here's where they're putting their refund cash instead.

Most of us are making the same mistake with our budgets - and here's how to fix it.

YOUR MONEY TIPS

Since Don't Short Yourself launched a month ago, we've been asking you to send us your favorite ways to save money or to make your money work for you. And you've delivered! Here are some of our favorite submissions so far.

Money Vampires

Reader and wealth adviser Nick Gerstema writes: "Kill the vampires. A vampire is anything that's a suck on your financial life. Think about what you have on autopay - maybe it's a streaming service you haven't logged into for months. Perhaps it's time to cancel those. And look at electronics that run all day in standby mode - the TV in the spare bedroom and the things that you just don't use. Unplug them and save a couple of bucks."

Spending Journal

Bill Sykes from Ohio also has a tip to rein in spending: "For years we have kept a daily journal of spending. At the end of each day, take your receipts and write down exactly what was spent and where. At the end of the week, take time to review and see where you could cut back. This will seem inconvenient when you first start, but stick with and it will become a regular habit. You will be surprised to see where this money goes and how much you can save by taking a thermos of coffee twice a week or bringing your lunch a couple of days."

Please share your own money tips - they could be featured in an upcoming issue. Send them to dontshortyourself@marketwatch.com.

-Joseph Adinolfi

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February 24, 2026 10:20 ET (15:20 GMT)

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