Navigating Black Swan Events and Market Disillusionment

This chapter delves into the significance of diversification in investing to manage risks amidst black swan events, such as recent meme stock incidents. It sheds light on the repercussions faced by traders who may have encountered losses and how disillusionment in the market could deter individuals from capitalizing on the advantages of prudent investments.

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BIO: Rizwan Memon is the Founder and President of Riz International, a Canada-based financial education firm that helps thousands worldwide maximize their financial success through trading.

STORY: Rizwan shorted GameStop’s stock, believing the price wouldn’t exceed $300. However, when Elon Musk tweeted about GameStop, the price increased to $500. Rizwan suffered a $160,000 loss on a single trade.

LEARNING: When shorting naked calls, make sure you have enough liquidity. Control the amount of money you bet on any particular position. Don’t trade on emotions.

“Sometimes the math, the probabilities—everything—can make sense, and you still end up being wrong.”

Rizwan Memon

Guest profile

Rizwan Memon is the Founder and President of Riz International, a Canada-based financial education firm that helps thousands of people worldwide maximize their financial success through trading.

Having 17 years of experience behind him, Rizwan is a seasoned expert in 8-figure stocks and options trading. Starting at 16 with just $5,000, he has made $10.5M+ in trading profits.

With 123,000 followers on Instagram and a vast global audience tuned into his trading advice, Rizwan has established himself as a voice of authority in the financial market. In 2023, he secured solid returns of 70% on his 7-figure trading account.

Worst investment ever

Rizwan’s personal investment journey took a hit in 2021 when he decided to buy GameStop stocks. He adopted a strategic approach, betting against the stock going above a certain ceiling. He believed that the stock would remain below $300 per share despite its already significant rise of 300%.

Gamestop was a disgruntled business that was not in great shape. It was on the verge of bankruptcy due to massive cash flow issues. Rizwan knew that this was unsustainable. So, he decided to put a ceiling on his investment, believing the stock would stay below $300. From a probability standpoint, the numbers were 99.5% in his favor. Rizwan shorted naked call options and loaded up a bit, but nothing substantive. After that, the stock went from $300 to $500 in about two days. This was after Elon Musk tweeted about GameStop. Rizwan knew he was in trouble. He remembers going to get groceries and sitting in the parking lot feeling miserable. Rizwan suffered a $160,000 loss on a single trade.

Lessons learned

When shorting naked calls, make sure you have enough liquidity.
Trading patterns are always rapidly evolving.
Sometimes, the math, the probabilities, and everything can make sense, and you still end up being wrong.
Don’t trade on emotions.

Andrew’s takeaways

Black Swans can happen. To handle such events from an investing perspective, ensure you’re diversified.
Control the amount of money you bet on any particular position.

Actionable advice

Avoid engaging in trades that may be complex or outside of your purview. Regardless of what influencers say, be skeptical and do your due diligence.

Rizwan’s recommendations

If you have questions or want to learn more about investing in stock markets, Rizwan is readily available on LinkedIn and Instagram. He is committed to sharing his knowledge and experiences to help you navigate the complex world of stock market investing.