---
title: 'The Killer Mistake to Avoid at All Costs'
source: 'https://youtube.com/watch?v=9EFSF444b7Q'
video_id: '9EFSF444b7Q'
date: 2026-08-10
duration_sec: 1044
channel: 'SMB Capital'
---

# The Killer Mistake to Avoid at All Costs

> Source: [The Killer Mistake to Avoid at All Costs](https://youtube.com/watch?v=9EFSF444b7Q)

## Summary

This video analyzes a real trading disaster where a community of about 1,000 options traders lost over $50 million in just four days. The host, Seth Furyberg, explains the mechanics of the iron condor strategy they used and reveals the fatal flaw in their money management approach, which was based on the Martingale system. The goal is to warn viewers against adopting similar high-risk strategies that require ever-increasing capital to recover losses.

### Key Points

- **The Trading Community Disaster** [00:01] — A trading community of about a thousand members all piled into a specific options trade daily. At least one member risked his entire life savings. Late last year, they experienced more than a $50 million loss over a four or five day period, and the member who lost everything had to launch a GoFundMe page.
- **The Strategy: 1DTE Iron Condor** [01:27] — The strategy involved constructing a market-neutral iron condor on S&P 500 index options expiring the next day (1DTE). The trader collects cash up front and profits if the index closes within a specific range, indifferent to direction as long as it doesn't move too far.
- **Example Setup on December 18th** [04:09] — Using a December 18th, 2025 example, the S&P closed at 6774.76. The traders sold the 6810 call, bought the 6815 call, sold the 6745 put, and bought the 6740 put, collecting a net credit of $1.80 per lot, meeting their $1.75 minimum.
- **Collective Trade Size and Cash Flow** [05:47] — Assuming 9,000 iron condors sold collectively, the community received $3,105,000 from selling calls, paid $2,385,000 for protective calls, received $6,003,000 from selling puts, and paid $5,004,000 for protective puts, resulting in a net cash inflow of $1,620,000.
- **Best Case Outcome** [07:16] — The best outcome is if the index closes between the sold call strike (6810) and the sold put strike (6745). In that 65-point range, all four options expire worthless, and the traders keep the entire $1,620,000 collected.
- **First Day Loss** [08:42] — On December 19th, the S&P rallied 60 points to close at 6835.50. The sold 6810 calls resulted in a $22,050,000 payout, partially offset by $17,550,000 recovered from the bought 6815 calls, leading to a net loss of $2,880,000 for the community.
- **The Martingale System Flaw** [10:26] — The strategy was based on the Martingale system, where after a loss, the trader increases the size of the next trade to recover all previous losses. This requires ever-increasing capital and is fundamentally flawed because no one has unlimited funds.
- **Escalating Trade Sizes** [11:07] — To recover the $2,880,000 loss, the next trade required 16,000 lots, collecting $2,960,000. The index rallied again, causing a $5,400,000 loss. The next trade required 42,000 lots, then 105,000 lots, each time failing as the index kept rallying.
- **The Final Collapse** [14:22] — On Christmas Eve, the S&P rallied again to 6932.05, causing a loss of over $31 million. The cumulative loss over four days exceeded $50 million, and many community members ran out of money, leading to financial ruin.
- **Key Lesson** [15:02] — Any system predicated on ballooning capital after each losing trade is doomed. The Martingale system may work in theory but fails in practice because traders run out of money before the eventual winning trade. Professional traders use systems with steady capital and edge, not infinite capital requirements.

## Transcript

trading community of about a thousand members who all piled into a specific options trade every day. And in fact, at least one member had risked his entire life savings to trade this particular strategy. And the reports are that the
doing great. Everybody was happy. But then, seemingly out of nowhere late last year, to their horror, the active members of the community apparently experienced more than a $50 million loss
over like a four or five day period. And remember, this was a strategy that was reportedly performing really well before this happened. And the guy who had risked his entire life savings, and there might have been more, I don't
know, but that guy actually had to launch a GoFundMe page soliciting donations to help him cover his basic living expenses. And this is really sad, actually. But you've got to ask yourself, how the hell does this happen?
I mean, a strategy is doing really great one day and the next day all these people are going broke from that same strategy. So, what is the lesson we can Well, we're going to do a deep dive into how something like this can happen. And
I'm doing this because I want everyone watching this video to promise me you'll never get involved in any approach that sounds anything like this. If you do, well, stick around and wait and see what could happen to you. I'm Seth Furyberg.
I'm the head trader of SB Capitalist Options Trading Desk here in Manhattan. And every once in a while, a catastrophe, a totally avoidable disaster takes place in the trading world. And it's important for our
community that follows our YouTube channel to be warned about this kind of thing so that you don't make this terrible mistake yourself. And that's Now, we're going to explain how this happened in this video, and it involves
a particular options income strategy. And so if you're absolutely brand new to options trading and you don't know much about options and how they work, we've created a video for you to understand options basics. And if you click the
video appearing on your screen right now, it will lay the groundwork for understanding the option strategy that we'll be discussing in today's video. Then when you're finished, you can come back and watch the rest of this video.
So first off, I need to say that I'm not privy to the precise trades that these people were doing each day. I have a general idea of what they were doing enough to understand how this whole thing blew up and we'll run you through
that in a minute. So today's explanation is not going to be a factual breakdown the example we're going to run you through today is a kind of a rough simulation estimate of what we understand happened to these poor folks.
And so the purpose of this video is not to issue an actual report on the loss these folks experienced. rather we want to run you through the math of why the basic principle upon which their trading strategy was premised had an enormous
risk embedded in it so that if you ever come across ideas like this in the future you'll understand just how catastrophic these ideas can become and so stay very very far away from them okay and so the way that this trade
works sometime near the closing bell the traders pull up an options chain of the traders pull up an options chain of the S&P index the S&P 500 index, an options chain expiring the next day. So in other words, a what's called a 1DTE options
chain and then the trader proceeds to construct what options traders refer to as an iron condor, which in this case we'd call a market neutral iron condor expresses no bias as to what the
that next day is. In other words, the trader is indifferent as to whether the index goes up or down as long as it doesn't go too far in either direction. And so, let's run through an example which I believe to be around the same
time frame as this catastrophe, you know, that happened to these folks. Okay, so as I said, this strategy utilizes S&P index options. So, let's take a look at the daily chart of the S&P index back on December 18th, 2025,
right before Christmas. As you can see, the index has been rallying all year off the index has been rallying all year off of its April lows, closing at 677476 that day. And so when you execute this particular option strategy, the iron
condor, you actually collect cash up front. And the goal is basically to hold front. And the goal is basically to hold on to as much of that cash as possible. And how this happens will become clearer to you as we go through the example. So
understand, once the traders pull up that options chain expiring the next day, they would look at the call side and the put side on that options chain and try to find a combination of options where they would collect a net credit of
a $1.75 for each lot that they sold. So, for example, let's take a look at this options chain from 4 PM on December 18th. As you can see with S&P closing right around 6775, if you move up the options chain on the
call side, you'll see that we've outlined both the 6810 and the 6815 calls. And on the put side, we've outlined the 6745 and the 6740 puts. If we just focus on the prices of those options, you'll see that if we had sold
options, you'll see that if we had sold the 6810 call, bought the 6815 call, the 6810 call, bought the 6815 call, sold the 67.45 put, and bought the 6740 put, if you net it all down, it comes to a $180. That meets the criterion of
receiving at least a $1.75 when you enter into this iron condor. So let's suppose that the members of this trading community collectively sold 9,000 of these iron condors that day. There were a thousand of them as I said. So it's
very possible that the collective number could have been about 9,000 of these iron condors. So the collective options change for the community would look like change for the community would look like this that day. selling 9,000 of the 6810
this that day. selling 9,000 of the 6810 calls, buying 9,000 of the 6815 calls, selling 9,000 of the 6745 puts, and buying 9,000 of the 6740 puts. What happens cash flow-wise when you do this? Well, as you can see, we sold the 6810
Well, as you can see, we sold the 6810 calls for a price of 345, but index pay options pay off at a rate of $100 per point. And so, you multiply that by 100 and we sold 9,000 of them. So when you multiply it all together, they would
have received from selling those 9,000 calls $3,15,000. Uh but then you turn right around and pay out 2,385 for buying the 9,000 calls up at 6815 for protection. As you can see from that
same calculation, then simultaneously we sold the 6745 puts bringing in 6 million3. And as you can see from the calculation uh we also pay out 5 calculation uh we also pay out 5 million4 for those protective 6740 puts.
So when you net it all down it results in positive cash flow of a million620 for which their brokers collectively would require 2,880 in capital to execute this trade using this you know 9,000 lot trade size that we did here
because that represents the worst case scenario loss on this trade. Let's first talk about the desired outcome of this trade. You see, you've received a million620 in cash and the goal of the trade is to hold on to as much of that
cash as possible by the end of the next day when the options expire. The best outcome, the outcome where you get to keep all the cash is if the index were to close at any price between the calls we sold at 6810 and above the puts we
we sold at 6810 and above the puts we sold at 67.45. Why? Because at any price between those two points, all four options expire worthless. That's because calls only have value if the closing price on expiration day is above the
call strike price or in the case of puts below that put strike price. But if the index ends up closing between those two points, anywhere in that 65 point range points, anywhere in that 65 point range between 67.45 45 and 6810, then all four
options would expire worthless because neither the calls nor the puts would have value in that range. In which case, then you'd get to just pocket the million620 in cash that you originally received the day before when you
pretty cool, right? You get to keep a,620,000. But there's another outcome. And an example of that is what happened on the next day when this trade expires and all the options can be assigned their final
value. And so as you can see the next day December 19th S&P staged a big rally day December 19th S&P staged a big rally closing up about 60 points to 683550. Now at this point as we said we're in a position where we can value each of the
options because they've expired. So let's take a look at that. And you'll probably be pretty shocked to see that while you start with a million620 of initial cash you've received, take a look at those 6810 calls that you sold.
To value a call at expiration, you have to take the closing price of the index and subtract from it the strike price of the call, which comes to $2450 in this case, as you can see. Well, when you multiply that by $100 a po a point and
you sell 9,000 of these options, you could see that comes out to a loss, a could see that comes out to a loss, a payout by you of $22, $50,000 on those calls. Now, you did also buy the 6815 calls and you're able to recover from
your loss a lot, 17,550, which is what those calls are worth at expiration for the same reason. To value the 6815 calls, you subtract out the the 6815 calls, you subtract out the price of S XPX from 6815 and you get
1950 for those. So when you multiply that out, it becomes a total value of 17,550 that your broker is going to cash in for you automatically. And of course, both the 6745 and 6740 puts expire worthless
because they are way below the S&P closing price of 683450. And so when you net it all down, it results in a loss to the community of results in a loss to the community of $2,880,000.
But the really bad part hasn't even been covered yet. So let's get into that. You see, the strategy that this group is apparently employing is a strategy based upon a money management technique that's actually used by gamblers called the
Martingale system. And the idea is that anytime you experience a loss, you simply put on a larger trade the next day where the initial cash received for selling the iron condor exceeds the loss from the previous days. So that if the
index closes between the calls and the puts that next day, you get to keep that cash and you'd be up money after two days even though you had a big loss the previous day. So in this case they'd need to collect more than 2,880
obviously when they entered into that next day's iron condor. Well to accomplish this the next day the trade would have required an increase in the would have required an increase in the lot size to 16,000 lots as you can see.
Why do I say that? Well, if we look at the prices we got for each of these options, you can see that we're talking some pretty big numbers here because the condor price per lot in this case was $185. So that exceeds our minimum $1.75.
And if you do the math, a 16,000 lot iron condor comes to 2,960,000 in cash collected from selling that condor, which exceeds the loss we had on
the first trade by a bit, which is how we got to that amount of lots. And by the way, in this case, the community's broker collectively required 5,40 in capital for this second new trade. But when we take a look at what
happened the next day, the index rallied again the next day up 44 points. This again the next day up 44 points. This time to 687849. Well, how did our trade do? Well, not too great because again starting with
the initial 2,16 cash you would have collected, the index blew far past the calls they sold at 68.65, 65, forcing them to pay out over $21 million for those. Although they recover over 13 million from the calls they bought up at
6870, but that wasn't nearly enough obviously and the traders would have lost $5,40,000 that day. So now keeping track of where we are, you can see that we're now up to total losses of $7,920,000.
And so we need to overcome that with the cash flow from the next day's trade. And so in this case, we have to put on a 42,000 lot iron condor. Why? Well, if we
do the math, we realize that with each lot bringing in a $1.90 that we'd be uh lot bringing in a $1.90 that we'd be uh needing 42,000 lots to get up to 7,980 in positive cash flow, which again slightly exceeds our loss from the first
true trades. Unfortunately, the next day, the index rallied again, closing at C909.79 that day, which is above the location of both of the calls. And so, when we do the calculation, as you can see, we've
the calculation, as you can see, we've now added another 13,20,000 now added another 13,20,000 to our growing pile of losses, which now totals over $20 million. And so once again, as the system dictates, the
traders entered the next day's trade with now, because of the massive losses, with now, because of the massive losses, would have required a 105,000 lot iron condor. Now more than 11 times larger than the first trade just three days
ago, by the way, which produces $21,210,000, just enough to cover the previous losses. And these condors are going to losses. And these condors are going to require a collective 31,290,000
in capital, more than 28 million more capital than was required by the very first trade just 3 days earlier. And so as some kind of a sick Christmas present
on Christmas Eve, the S&P index rallied yet again, closing at 693205, blowing again well past the location of both calls, resulting in a loss of over
both calls, resulting in a loss of over $31 million, resulting in a cumulative $31 million, resulting in a cumulative loss over $50 million in four days. And of course, as as it always inevitably will, many of the community members
apparently simply ran out of money and some of them were as a result in financial ruin. And so what are the lessons that we can draw from this very sad story? Well, the most obvious and glaring one is that any system
predicated on ballooning capital after each losing trade until you make up all the losses from all the previous cumulative trades. That has a giant flaw there's no one with unlimited amounts of
plan. You just keep doubling and tripling and quadrupling down on the same bet until it finally wins, which it eventually will. But the flaw is that you won't be there to take that final bet that wins it all back because you'll
have gone into bankruptcy. In other words, you won't be able to make that bet. And so then the entire thing collapses. The Martingale system may or But it sure as hell doesn't work in trading. And so this is a cautionary
tale. You can either accept it or not, but I can virtually assure you that if you ignore the advice we're giving you in this video, you'll lose all your money and your dreams of becoming a full-time trader will go up in smoke.
There are plenty of options trading systems that have edge with steady levels of capital and don't require infinite capital to work. Professional traders work with their mentors and their colleagues to develop these
trading systems and then trade them often very successfully with reasonable amounts of capital which through their own profits or supplemental capital from others can be scaled up carefully and deliberately to very meaningful levels
without taking crazy risks that will end up in disaster like happened to these poor people. Now, if you'd like to learn three more option strategies that our prot traders use, including the unique options trick that allows you to make
money while you wait to buy stocks or ETFs at the price you want, and the options income strategy that allows you to make consistent money whether the to make consistent money whether the market goes up or down or sideways, and
how to make money on a stock or index trade, even if you're wrong on the direction, then click the link that's appearing ing right now at the top right hand corner of your screen. That will open up the free workshop registration
page in a new window. So don't worry, you won't lose this video. Or you can register directly for free at optionsclass.com.