Bad Options
My Dumbest Investment

After reading up on options, I dove in. I got lucky with my first small investments and was soon feeling like an expert. So I took a $5,000 cash advance on my credit card to invest in options with high implied volatility. I didn't realize high implied volatility meant very risky. I focused on a biotech company that was supposedly on the verge of approval for a staph infection antibiotic. It seemed to be a sure bet. With my borrowed money, I broke even in the first month. In the second month, I made about $1,000. My plan was to double my money in four months. In the third month, I learned that the staph drug didn't get FDA approval - the stock plunged. I owed the broker about $1,000 and Citibank credit cards $5,000. Meanwhile, I tried riskier plays in other accounts and lost all my gains and then some.

- N.E., Seattle

The Fool Responds: Options are tricky, and certain varieties can be especially risky. Remember that you can do well without ever using them.

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