When Options Traders Beat the Odds (And What You Can Learn from Them)
The options market is known for its volatility and inherent risks. However, there are traders who, through strategy, timing, or sheer intuition, have managed to turn unlikely scenarios into significant wins. These cases offer valuable lessons for any trader looking to refine their approach, manage risk, and, ultimately, beat the odds in the market.
Here are five real-world examples where options traders defied expectations and walked away with major wins—along with insights into how you can learn from their success.
The 1987 Stock Market Crash and the $100 Million Profit
The Event:
During the infamous Black Monday crash of 1987, the Dow Jones Industrial Average plunged 22.6% in a single day. Most traders faced steep losses, but one trader, Paul Tudor Jones, foresaw the crash and positioned himself to capitalize on it.
The Trade:
Jones used put options to short the market. Leading up to the crash, he analyzed historical data and identified an impending crash similar to the market collapse of 1929. This gave him the conviction to buy put options, betting on a market decline.
The Result:
Jones walked away with an estimated $100 million in profit, a legendary win in the world of finance.
What You Can Learn:
While predicting market crashes is difficult, understanding historical patterns and using options as a hedging tool can help mitigate risk. Keeping an eye on technical indicators and having a plan in place can make a huge difference when volatility spikes.
The Big Short: Betting Against the Housing Bubble in 2008
The Event:
The 2008 financial crisis wreaked havoc on global markets, but a few traders saw the housing bubble’s collapse coming and used options to make significant profits. One of the most famous examples is Michael Burry, founder of Scion Capital.
The Trade:
Burry used credit default swaps, a form of options, to bet against subprime mortgage bonds, which he believed were massively overvalued.
The Result:
When the housing market imploded, Burry and other traders who followed similar strategies earned billions in profits, even as the broader market crumbled.
What You Can Learn:
Sometimes the most significant opportunities lie in going against the crowd. If you see a glaring inefficiency or flaw in the market, options can provide a way to capitalize on it. Don’t be afraid to take a contrarian view—just ensure you’ve done your research.
The $7 Million Bet on Apple in 2015
The Event:
In 2015, a trader bet big on Apple’s stock price surging before the release of a new product. The trader bought hundreds of call options on Apple, betting that the stock would rise sharply.
The Trade:
This trader bought call options with a strike price just above Apple’s current price at the time, a bullish move that would pay off significantly if the stock surged.
The Result:
The gamble paid off, as Apple shares surged following the product launch. The trader reportedly made around $7 million in profit from this single bet.
What You Can Learn:
Betting on earnings reports or product launches can be risky but profitable. If you anticipate a big move, call options allow you to leverage your position for maximum profit. However, always factor in the inherent volatility and potential for unexpected outcomes.
The Tesla Short Squeeze of 2020
The Event:
Tesla’s stock faced massive short interest in 2020, but the company’s rapid price increase led to a monumental short squeeze. Those betting against Tesla faced significant losses, while those holding call options experienced massive gains.
The Trade:
Some traders recognized the potential for a short squeeze and bought out-of-the-money call options, anticipating that Tesla’s stock would rise sharply.
The Result:
Traders who timed the short squeeze correctly saw enormous returns, with some reports of individuals turning small investments into six-figure profits within days.
What You Can Learn:
Short squeezes create opportunities for explosive price movements in both directions. Recognizing when a stock has high short interest and anticipating a squeeze can lead to large profits with options. However, timing is everything, and missing the mark could result in steep losses.
The Reddit-Driven GameStop Rally in 2021
The Event:
In early 2021, retail traders on Reddit’s WallStreetBets forum orchestrated an unprecedented short squeeze on GameStop (GME), causing the stock price to surge over 1,700% in a matter of weeks. This event saw some retail traders make life-changing amounts of money.
The Trade:
Some traders bought out-of-the-money call options on GME, expecting that the stock would rise significantly as short-sellers were forced to cover their positions.
The Result:
Many of these traders experienced massive gains, with some turning small, speculative options trades into millions of dollars.
What You Can Learn:
Even in today’s market, unusual events can present extraordinary opportunities. However, these types of trades are speculative and come with high risks. If you engage in trades like this, be sure to understand the extreme volatility and the potential for significant loss as well.
Key Takeaways: How to Beat the Odds with Options
Beating the odds in the options market isn’t about luck—it’s about recognizing opportunities, conducting thorough analysis, and having a well-thought-out strategy. While these examples demonstrate traders who made millions, they also underscore the importance of risk management, timing, and market awareness.
- Know Your Market: Whether it’s recognizing bubbles, market inefficiencies, or upcoming product launches, having deep market insight is critical.
- Leverage Volatility: Options thrive on volatility. Be prepared to capitalize on sudden market movements but always protect your downside.
- Use Historical Data: Analyzing past market patterns can provide clues about what might happen next.
- Risk Management is Key: Even the best setups can fail. Always have a plan for managing risk in case the market moves against you.
By learning from these remarkable trades, you can begin to develop your own strategies for turning unlikely scenarios into opportunities. Just remember, big wins often come with big risks, so tread carefully and trade responsibly.
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