All right, welcome, everybody,
welcome to Coffee with Markus, this
is Episode 57.
And you see usually in this Coffee
with Markus, we talk about the
markets, we talk about my trading
account, we talk about stocks, but
today this is a very special
episode.
Today we're gonna jump right in
because we're going to talk about a
tragedy that happened last week
that kept me up at night.
It's really a true tragedy because
a young trader, Alex Kearns,
died on Friday, June 12th,
after throwing himself in front of a
train in his hometown in Naperville,
Illinois. This is the young trader,
Alex. I mean, 20 years old.
See, Alex had a $20,000 account
with Robinhood, one of the
brokerages, one of the many
brokerages and he was trading
options. On Friday, June
12th, which right now is a little
bit over a week ago, his
trading platform showed
a negative cash balance and
a buying power of more
than $730,000.
Let me just show this to you.
This is this screenshot from
Alex's computer or phone,
where you see that it says cash
negative $730,000.
See, Alex was 20 years old and
he thought he could never recover
from a loss that he
described as almost one
million dollars.
This is according to his suicide
letter. So he thought his life
was over and so he took his
own life, and this is a tragedy.
And in this video, my goal in this
video is I will show you exactly
what happened. I will show you
the trade that I believe Alex
did. I will show you what went
wrong so that you
don't make the same mistake.
See the following, what I'm
presenting here over the next few
minutes is based on many hours of
research and I'm listing
all my resources here in the
description.
Also very important if you know
somebody who is in crisis,
right? Please call the National
Suicide Prevention Lifeline, the
number is listed in the description
as well and I'm showing it here
on the screen.
See when I heard about this tragedy
last week that a young
20-year-old trader took his
life because he thought,
he thought that he had losses that
he could never recover from.
I was shocked.
I wanted to understand what
happened.
How could this 20-year-old
trader with around $20,000 in
his account have a
$730,000 negative cash balance?
Let me show this to you again.
Of course, I understand if you look
at this, that he could be
devastated.
So here is I want to show you
exactly what I think happened.
And what I'm presenting to you right
now is my personal opinion based on
my trading knowledge of many, many
years, as well as my extensive
research of this tragedy.
I said I spent countless
hours on this, it really
kept me awake at night.
So Bill Brewster, his cousin,
was very active on Twitter.
He revealed more information there.
So he said that Alex,
this trader, was trading bull
put spread.
So this means that you're selling
a put and you're buying another put
as protection. I'll show you in a
moment on the charts and on
a trading platform exactly
how this works.
But my first thing was I
wanted to find out what options
was Alex trading.
So we already know that he was
trading a bull put spread.
So there's a website, I want to show
this to you, it's called RobinTrek.
RobinTrek is a website that shows
what stocks
Robinhood users have in their
accounts. See, the most popular is
F, GE, AAL.
Anyhow, I looked through most of
the stocks, and the only one that
would make sense for this strategy
here is Amazon.
So Amazon is 19
and it has a $5 strike
price. So I want to show you what I
think has happened.
So here is the chart of
Amazon, this is a daily chart.
I marked the day
when Alex took his life.
So this is when his options
expired and he had this
massive negative buying
power in his account.
So I believe here's what happened,
that a few days ago Alex saw
right here that Amazon
was making new all-time highs.
And when you are putting on a
so-called bull put spread, you're
expecting a stock to be either
neutral at the same level or go
higher. And it is very, very typical
for many traders to think that if
a stock makes a new all-time high
or new 52 week high,
that it will continue to go higher.
So I believe, based on my research,
that Alex sold the
2,550 put and he bought
the 2,445 put
as protection.
Now, let me show you, let me show
you exactly what this trade
looks like when we go onto the
trading platform.
See, we're trying right now to mimic
something similar that has happened
here. So I'm going to the trading
platform, obviously, I cannot put on
the same trade that Alex put
on. But here we are at Amazon.
We're looking at an options chain with
four days to expiration.
So Amazon right now is trading
at 2,700.
And again, this is where going back
to what Alex saw on the chart,
he might have believed that
it will stay above
2,550 and that is the line that I
have here.
So if we use the current example, it
would be like basically saying that
Amazon will stay above
2,600 in our example here.
So I just want to try to recreate
this spread here.
So in this case, we want to say that
it stays above two thousand, maybe
six hundred fifty.
So we would sell this put and
then buy another one
as protection.
So let me actually show you first
what happens if I would only
sell the put. You see the buying
power. This here what I'm showing
you is a $20,000 account, very
similar to Alex's accounts
here. So but if I wanted to
just sell the 2,670
put I needed at least
a $100,000 to sell
one of these options.
Because here is what this does,
when I'm selling the put at the
strike price it means that
if Amazon goes below my
strike price, I have to buy
100 shares of Amazon
for each one option
that I'm selling.
So this is why the broker
that I'm using here, TastyWorks,
requires me to have at least
$99,000, almost $100,000 in my
account. However, if I'm as
protection trying to buy
a put that is just one strike
price below, so now you see the
buying power, the money that I need
in my account to trade one of these,
one of these bull put spreads
is only $340
and I can make
$160 and I would risk
$340. So maybe even Alex
I believe that he was trying to make
$200 risking
$300. Again, that's my belief
here. So looking at this
to see exactly what's happening
here. So I believe he was
trying to make
$200 risking
$300 per one option.
And if my math is
right here, I believe, actually
was risking $500, I believe
that he was trading 3 options.
And I will explain to you of why
I believe that he was trading
3 options here.
This is based on the numbers that
I've seen. Now, as you can see,
Amazon on this day closed
at $2,554.02.
This means that right now the put
that he sold is in trouble.
So it is below
the put that he sold so therefore,
he has to buy Amazon
at $2,550.
Now, let me write this down, for
each option that he traded
he would have to buy
100 shares of
Amazon for
$2,550.
So if he was trading 3
options, this means that he would
have to buy 300 shares
at $2,550.
So this brings it up to a total of
$765,000 that he needed in
order to buy these shares.
Now, again, Alex thought that he was
protected by the
$2,445 put. Because here's the deal,
when we go to a platform, any
platform I mean, Robinhood probably
does the same way, and we're
taking a look at the analysis and
we see here exactly.
OK. He's trying to make
$200 and that he is protected
and that all he can lose here is
$300, right?
I mean, so not bad at all.
It should have actually worked
out well. But let's see
what happens here since he got
assigned and this means that the
stocks will be in this account
on Monday. As I said, selling a put
means that you have to buy the
stock for the strike price.
So what I believe happened is that
the broker in this case, Robinhood,
reserved the money for buying
the stock. But you see, the stocks
are not yet showing up in the
account. And this is why
Alex suddenly saw in his account
a negative of
$730,000. Again, this based on the
math that I did here.
So, as you can see, it is
possible.
So he didn't have the money,
obviously, he didn't have enough
money to buy these shares.
So this is the broker would
have sold the shares on Monday,
June 15th.
So let's take a look at the chart
again. So this is what would have
happened and then Monday
morning, the broker would
have sold the 300
Amazon shares at the open.
So the price at the open was
$2,526.
So let's think about it.
You bought it for
$2.550 and now he can
sell it for
$2,526.
So this means that he has a loss
of $25 per
one share.
So this is the loss.
So the loss $24
per share and since he
has 300 shares,
the total loss would be
$7,200. Now, again, this already
is kind of scary because he was
actually thinking that he would only
risk $500 that this would be
his maximum loss here.
So it is much more, per one option,
it is much more than the expected
$1,500.
So let's talk about it.
What happened?
Alex, who took his life, said
in his suicide note it should
have canceled out.
And you see, this is a common
misconception when you're trading
spreads.
No, it did not cancel out.
Why? Because this
was the date of expiration,
June 12th these options
expired. So the protection
that he had in place expired.
So what you need to do,
if you see that one of the options,
if you're trading a bull put spread,
as I believe he did, based on the
information that I have, and if then
you are getting into the
money, why do you need to do?
You need to close
the option because otherwise,
it can happen that you are getting
assigned and when you are getting
assigned, you suddenly have to come
up with a lot of money that you
might not have.
Now, again, the broker will not
let it happen that your account goes
negative for that
huge amount that you
saw here the $730,000.
But he could have lost possibly
$7,000-$8,000
depending on when he got filled.
So the broker will sell the shares
right away.
But Let's go back to the example.
So close the option, the price
of Amazon on that Friday
when the options expired was
$2,545.02. So the value
of the $2,550
option, so it has a strike
price of $2,550
is around $5.
Probably a little bit more here but
let's just say $5,
technically, it's
$4.98, but you get the idea.
So this means that you have a loss
of $5
per share or
$500 per one option
traded.
Now, since he traded 3
options, his loss would have
been
$1,500.
This is when you close
out the option.
This is why it is so expensive.
So you see, I believe that this
happened led to the tragedy that he
had spread, he thought
that he was protected but then
it turned out that one of the
options expired and the other one
that was deep in the money here,
that was in the money by
$5, he got assigned and the
broker actually started
reserving the money because
he needs to buy these
shares, but then he would have the
shares in the account.
But this is what led to this
unbelievable cash of a negative
of minus
$730,000. And also, as you can see,
the buying power of
minus $730,000.
Now, Alex saw this and thought he
could not recover from this.
But let's talk about the important
lessons here. And again, if you
know anybody who is in crisis
or if you are in crisis, please call
the National Suicide Prevention
Lifeline.
It's here, this is an important
thing. But let's talk about the
lessons here and then you could
really help everybody here
if you shared this video here,
I'm not asking for likes because
it's a tragedy. I don't want you to
like this video because that's
not the point.
I want to show what happened and the
important lessons that we can draw
from this here.
So there's three lessons.
Number one, know what you're
doing. See, these days, there's
many people who make you believe
that trading is easy.
It is not.
I believe that trading can be
simple, but it's not that easy
otherwise, everybody and his
grandmother would be doing it.
And this is what we see. We see
young kids, I mean, my son is 17
years old.
In his class there is many
kids who do have accounts with
online brokers.
The most popular being Robinhood
here.
And it is very important that you
know what you are doing.
So I can't stress this enough before
you start trading and go into
the arena, make sure that
you have education,
education, education.
What does it mean?
This brings me to lesson number two.
You got to have a plan.
And the plan tells you what to
trade, when to enter, Alex
got that right, but number three
is when to exit.
And you see, this is one of the big
mistakes that too many traders
are making.
They don't know when
and how to exit.
You won't believe the amount of
emails and comments that I get on
the YouTube videos where somebody
says, "I'm in this trade,
I'm upside down.
What should I do?" And I'm always
shocked where I say, "How could you
enter this trade without
exiting it?" Right?
So this is
what I see is happening, especially
right now while we are still in
this worldwide crisis, in this
pandemic where people lost
their jobs. And where we also see
tremendous opportunities in the
markets.
So everybody wants to take advantage
of it. Everybody wants to be there
when the market rebounds and see
this is when people jump into
trading who are not yet educated.
So this is why I'm so glad that
you're here watching this video.
So I don't understand you to expect
fully what a bull put option
is or what a bull put spread is.
And you see, if you don't understand
it, don't trade it.
But let's talk about the third
important lesson here.
And the third lesson here is a
little bit more technical.
And this is for all options traders,
don't get assigned
unless you really
want to own the stocks.
Close out options that are
in the money if you don't want
to get assigned because otherwise,
you wake up the next morning and you
have a bunch of shares in your
account that you probably
can not afford and don't want
to have.
So I know it sucks.
There's always this hope,
right? That traders have and hope is
not a strategy.
But there's this hope that maybe on
Friday in after-hours
the stock bounces back, it gets out
of the money.
No, when you see that you're close
to getting in the money, or when you
have options that are in the money
and you don't want to get assigned
the stock exit,
close it out. Take your loss
if there is a loss.
Take your win if there's a win.
If you leave a few dollars on the
table, so be it.
But don't get into a stock that you
don't want to own and hope
that on Monday it goes up.
You see here in this case of Alex,
Amazon went against him.
It closed on Friday at
$2,545 and then opened on Monday
$20 lower.
Now, for Amazon, that's nothing.
What's $20 on a $2,500
stock?
Nothing.
But it is enough to get you in
trouble if you have a rather small
account.
So this is what I wanted to share
with you. And I'm sorry if I'm not
as uplifting and motivating
as I'm usually are because this
really hit me hard.
It hit me hard that I had to learn
that this trader I want
to bring his picture up here.
Alexander E.
Kearns from Illinois,
took his life because he saw
something in his account that scared
him shitless. And honestly,
I believe it would scare anybody
shitless if you don't know what
you're doing. And he thought that
his life was over and so he decided
to end it, which is a tragedy
and should never happen again.
So I want to make sure, first
of all, if you know anybody,
no matter what, it doesn't have to
be related to trading, who is
in crisis or if you are in crisis
for whatever reason, please
do call the National Suicide
Prevention Lifeline.
It is so important.
And secondly, when you are trading,
please make sure that you know what
you're doing. And please make sure
that you do not only know what to
trade, Alex knew what to trade, he
wanted to trade Amazon, he wanted to
trade a bull put spread.
Do not only know when to enter, Alex
knew exactly when to enter.
But the third and most important,
know when to exit.
Have an exit plan
and an exit is either with a profit
"yay" or with
a loss. Losses are part of the
business.
Alright, I hope this helps. Please
share this video with as many people
as possible so that they know
what happened here.
And again, this is based to, based
on my research and what I
think happened here, I don't know it
for a fact. All we know is that a
young man 20 years
ended his life, he lost his life
because he didn't know
what happened to him when he saw
this massive $730,000
"loss" that wasn't even a loss.
It was just that the broker reserved
the money and it would have been all
resolved, he would have probably had
a loss of $7,000-$8,000.
And yes, that's bad because he was
planning on only having a loss of
$1,500, right?
So make sure that you, that you
know what you're getting into.