How One Trader's 'Safe' Bet Turned Into a $380,000 Loss

Editor's note: It's never a good idea to throw all your money into one investment. As Dr. David "Doc" Eifrig explains, even the "safest" bet on a single stock could sink your portfolio. In this piece – adapted from a November 2025 issue of the free Health & Wealth Bulletin daily e-letter – Doc shares how one seemingly safe investment went sour... and covers the No. 1 way to protect your portfolio in this market.

It's hard to admit that you're stupid.

You could turn $400,000 into $20,000 and still walk away without that self-awareness.

But when one young trader saw a $380,000 loss on a single call option, it taught him a valuable lesson. He wrote an article for Vice in which he called himself stupid 10 times.

This wasn't even a story of complete stupidity...

Sure, this anonymous trader gambled on "meme stocks" like AMC Entertainment (AMC). Like many young people, he got sucked in by the pandemic's bull market.

But those were the trades where he made money. Once he emerged from a series of speculative bets that turned $5,000 into $50,000, he was ready to start playing it safe.

That's a smart instinct. But his execution was terrible – and it turned his bet on a "safe" company into anything but a safe move.

This trader found one good investment thesis. Then he put everything he had into it: the $50,000 he'd made from his previous trading, plus all the savings he'd built up by working a good job and spending conservatively.

The company he pegged all his wealth to was Alibaba (BABA), the e-commerce giant that's like China's version of Amazon. He did some research. This was a stable, wildly successful blue-chip company. Yet its share price ($245) was down more than 25% from its peak.

The company was still making tons of money, pushing down its price-to-earnings ratio. Analysts he found online were confidently calling Alibaba a buy.

He decided to buy BABA $200 calls. If he was right and shares turned around, he'd make a fortune. If he was wrong... well, how far could this great company fall?

He put all his available cash into the trade. Alibaba kept falling. And as he earned more money, he put that cash in, too – another $100,000. He couldn't even pay his $900 rent until his next paycheck came in.

Alibaba still kept falling. He eventually sold when his $400,000 investment in BABA calls was down to $20,000... a 95% loss.

The problem wasn't his investment thesis. He was right that Alibaba was a solid company at a good price. We even traded Alibaba several times in my former Advanced Options service between 2019 and 2021.

In hindsight, he realized his error...

I should have listened to [my mom]. She told me to diversify a little. Don't go all in on one. But I felt like, because she told me not to do it so many times, I actually had to.

As his situation illustrates, everyone and their mother knows you need to diversify. This isn't an insight. It's a platitude or a hand wave, a way to prove that you considered the risks of an investment. It's an admonition akin to "Eat your vegetables"... acknowledging the wiser action without changing your behavior.

That's partly because diversification is a bit boring. It's more fun to go for the big score.

But it's also because diversification is difficult to implement... Sure, putting all your liquid assets into a single option trade is an extreme example. But diversifying properly involves understanding correlations that vary across time between assets with shifting categorizations. This is an area that human minds – even those of accomplished statisticians – can't fully understand.

Do you diversify across stocks and bonds? Growth and value? Cyclical and acyclical? Of course, you can diversify by sector, industry, size, and other features as well.

So telling someone to diversify isn't really like saying, "Eat your vegetables." It's more like telling them to eat healthy. Sure, we'd all like to... But how?

Two Criteria for Diversifying Your Portfolio

The unsexy answer is that you need to keep slogging away and try to understand your investments.

But when you're competing against the unlimited resources of Wall Street pros, where do you even start?

Right now, I'd suggest that you want to do two things with your portfolio: participate and protect.

That means you want to participate in the booming economy and the bull market it's fueling... but also protect your wealth from the downturns that may come by holding conservative, value-creating businesses.

This market could keep going higher... But when valuations get this high, the risk of a major reset also rises. If growth disappoints or sentiment shifts, a 20% or 30% downswing can happen quickly.

You want some positions that can protect you from a correction or even a recession.

Now is the perfect time to take a hard look at your portfolio. Walk through it, position by position, and ask yourself which of your holdings are designed to participate... and which are designed to protect.

And finally, make sure you aren't in danger of losing it all if one of your "safe" bets goes south.

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig

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