Her name really was Amber.
This woman came from the health sciences field and found us many years ago. She took the training and actually was doing very well. She was a member of the Inner Circle and submitted reports from time to time as to her impressive numbers. I was very excited for her, especially knowing that she had five children in her care. Amber felt that she found her panacea.
Trading SPY options was it!
She was making money and was very happy, considering leaving her regular job to stay home with her kids.
We had a great rapport. I continued to mentor her on SPY trades and she demonstrated a high degree of the attributes it took to make consistent gains on the market. I was quite proud of her!
Then one day, she mentioned how well she was doing with naked puts on FFIV. What?!?!?
Right away, I got on the phone… “Amber, I want you to immediately stop trading naked puts! Where did you find out about that?” She responded “My friend told me about them…and besides, I’m making money, Hugh.”
“Amber, I forbid you to trade those! Stop it now!” I proceeded to explain the dangers and how you can make money in a bullish market but when (not if, but when) the market turns on you, brace yourself for a margin call.
“What’s a margin call, Hugh?” I told her that “It’s when some guy from your broker will strong arm you into coming up with lots of money right away or they will liquidate your account!”
“But I’m making money”, she argued. I was firm… “You need to stop trading naked puts. It’s very dangerous.”
A couple of weeks later, I got the call from Amber… “Hugh, they want $40 some thousand dollars to cover my shorts. What should I do?”
I knew she had few options. “Pay it or they will liquidate your account.”
I could just about hear the tears flowing as told me “But I don’t have it.”
“Well…. it pains me to say it… but, I told you so.”
They liquidated her account and my would be poster child no longer trades. Yet had she stayed with straight calls and puts on SPY, thereby limiting her risk, she would have been very well off, including her five kids. She was doing well for the longest time.
I still wonder about Amber from time to time.
Naked puts work in flat or bullish markets, not in trend reversals.