Usually we retails like feel good stories. Frankly I still wish Karen did succeed: That would be the revenge of us mom and pop retail plebeians.
She really should have. But she broke 2 very important rules in trading. 1) Be selective with what you trade. With option premiums writing, you need to be very selective with the options you write. I bet you she tried to widen the selection of options that she was trying to write to achieve higher gains and that's when she incurred more losses. And you can't do that with option premium writing. With option premium writing, you have to stay focused over a very small group that gives you profit. Once you widen the group to include more options, you run the risk of including options that have too high of imp. vol that's not really compensated by the premium and that's when you make losses.
And 2) Cut the losses early. This is especially important in option writing because when writing options, your profit potential is limited to the premiums that you got so there is no letting the profit run. When you can't let your profit run then it becomes especially critical that you cut your losses early because you won't be able to grow your profit enough to compensate for your losses if you don't cut them early. Cutting losses early means no rolling the losses forward. Once you've made losses, you have to let it go. Close the option with the losses and start anew with the next batch of option writing. If you start rolling the losses forward that's when you get stuck with bigger and bigger and bigger losses that just stay forever and ever and ever there albeit unrealized until it snowballed into something so huge that it's out of control and bigger than your profit. The bigger the losses, the more afraid she must've been in cutting them and also thinking that as long as she doesn't close the position she can just forever hide those losses in unrealized losses and then when the stock eventually turns around she can make the losses back or at least mitigates them. The problem with that thinking is there is no guaranteed time when the stock is going to turn around and by how much, 5 months, 5 years, 10 years, never and meanwhile the losses is still accumulating. If she had closed the losing option positions when the loss is still small, she would've been fine because she would've been able to cover them with the winning options. Yes she would've shown a loss on the books but it would've been manageable unlike the humongous losses that she's now forced to face.
