Topics: The Feelz, Emotions, Humility, Investing, and Pride

As most of you know, I have a lot of thoughts on risk, fear, and market volatility. About two weeks ago I was on the benefiting end of one of the most volatile volatility trades in recent history.

This post is a retrospective reflection of that trade, my thoughts throughout it, where my head is at now, and what I’m struggling with.

Big Picture

I hate day trading. I think it’s fruitless 99% of the time.

Whenever I think of quick, short-term profits with “unlimited upside”, I have to stop myself.

As King Solomon wrote, “Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.”

We can talk through 0DTE options, day trading, etc… but again, I think most of it is fruitless. There are a many studies coming out, with most suggesting that 90% of day traders lose money.

Yikers.

But there’s one thing I will make short-term trades on: volatility.

For more on the VIX, what it is, and how to trade it, check out this article.

What Happened Two Weeks Ago?

Due to poor economic data + higher interest rates that were blowing up the Japanese, US markets sold off and volatility spiked.

During my time at Vandy, I studied under Mr. Whaley (the dude that created the Vix) and he told me (more or less), “Bro, the Vix is normally vibing around 17-18. Whenever it’s not acting normal, bet on the fact that it’ll go back to being normal.”

So I said “bet” and followed Mr. Whaley’s advice by shorting VXX and buying ATM puts on UVXY and VXX. Then markets rallied and the VIX fell at a record pace; in fact, it was the fastest reversal in the history of the VIX.

Healthy returns were generated. Oopsies :)

What Happened Next?

Shortly after things started to move in my favor, I quickly started fantasizing about the massive returns I’d make and about the next “big trade” I’d make.

If you refer to the beginning of this article, that’s exactly when I can expect to lose. So I entered limit sell orders at what I thought were reasonable marks and just let it ride. Most of my positions have been closed at this point.

The more emotional you get, the more likely you are to lose.

My Next Big Idea

I had a couple of initial thoughts when my positions were starting to close and I saw the % returns generated:

1. I wish I would have invested more in this.

2. What’s the next big trade I could do to replicate this performance? Maybe I could short NVDA or Cava (two of the most expensive stocks on the market)?

Both of those are bad, bad, bad ways of thinking. While I may end up shorting / buying puts on those stocks, it was simply an emotional response with no research / data invested yet. I ended up having to have a “come to Jesus” moment with myself to get my brain right.

“But Drake, why are those bad thoughts?”

This is why:

Most people underperform the market because of those thoughts. When investing becomes about short-term profit and acting on emotion, it’s not really investing and it’s more about gambling.

I don’t gamble.

When we gamble, the house will always beat us in the long term. There’s a reason about a third of lottery winners go bankrupt.

“Wealth gained hastily will dwindle…”

I forced myself to set down the idea of doing another high-risk, high-reward trade for a few weeks so that I could be level-headed and more rational. Because that’s how I win; focusing on buying great investments at great prices and holding them for a long time (unless they are short-duration volatility options hehe).

Conclusion

It was fun making a pretty sizable ROI, albeit not on a crazy large sum of money. Regularly checking where my short positions and options were being marked / priced was mildly stressful (unfortunately it’s a necessity with short selling, as a sharp increase in price or increase in collateral requirements would invoke a margin call).

I hate getting emotional with money, but it’s a reality that most of us deal with regularly; the highest ROIs happen when you’re rational and, occasionally, when you go against your best instinct. I had a really large emotional response and have spent a couple days getting back in a good headspace to invest.

Does making money on this trade mean I’m smart? Sure, maybe… Whatever. Who cares? If I were to follow my next impulses, all the profit created by this trade would eventually be lost. Frankly (to rat myself out), is it really smart that I only placed half of these trades in my ROTH IRA (thus paying short-term capital gains tax on the other half of my returns)?

I share all this to give you some insight into my brain.

All over Twitter, Reddit, etc are people posting their massive returns, but you probably won’t hear about the margin calls, the blowups, and the -99% losses. Getting caught up in the cycles of fear and greed will, inevitably, destroy your portfolio and corrupt your long-term financial plan.

I dabbled in the world of short-term trading and suffered the emotional backlash associated with that. Acting on the emotions that came from a really good investment would have destroyed me.

Summary

• I traded the VIX and happened to time it up really well. I made some money.

• I got emotional and dramatic once I saw the returns I was making. Thankfully, I stopped myself before I did anything more aggressive.

• The more emotional we get, the more likely we are to get caught up into cycles of greed and fear; this is how you destroy a long-term financial plan. I was caught up in that for a few days.

• The house always wins when we gamble our money; it’s not worth it.

Keep stonking, scientists!

Disclaimer: I bought the dip on INTC last week, but I’ve been looking at buying Intel for a few years. While I was in this emotional, greedy state I’m attempting to describe, I thought the purchase was conservative and would generate a good ROI for the long term. I’ll probably share more on this later :)