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Robinhood 20yo trader with no income loses 700k on options, takes life

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Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#21

Post by cowmoo728 »

hejja wrote: post #3

I'm aware options are complicated, but is someone able to expand on how this is possible? I guess if you short calls you have unlimited downside, no? but it was my understanding that the entire point of options was to cap downside (don't exercise) and maintain upside

He likely did a credit spread and one of the options exercised early. Robinhood shows that you owe $x, but if you look closer you have another option that guarantees that you'll get the stock to cover it, you just have to email robinhood support and tell them to exercise that option too. Very sad that he likely didn't even owe that $700k, just misunderstood the UI in his panic.

https://www.reddit.com/r/RobinHood/comments/9guf3n/doh_some_...

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#22

Post by whb07 »

hejja wrote: post #3

I'm aware options are complicated, but is someone able to expand on how this is possible? I guess if you short calls you have unlimited downside, no? but it was my understanding that the entire point of options was to cap downside (don't exercise) and maintain upside

They probably ran up something like +$150k+ and then kept pushing it, used all margin to get multiples of this amount which went bad shortly thereby going deeply negative.

Live by the sword, die by the sword.

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#23

Post by missedthecue »

monksy wrote: post #7

Robinhood is one of those Silicon valley companies that feels that the rules don't apply to them you. People have been yelling for years that "HEY THERE IS A REASON YOU SHOULDN"T BE DOING THAT." The tide has been coming in, and this is ABSOLUTELY no surprise.

Is it really Robinhoods fault that someone made a poor decision?

If the individual in question had paid $4 to execute that transaction would that have been fine?

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#24

Post by jdminhbg »

throwaway2048 wrote: post #13
newguy1234 wrote: post #11

Earlier quoted context omitted.

Because you need to qualify for margin and the person who lent you the money agreed to lend it to you knowing that you could BK it. With student loans, the student usually doesn't have an income or assets so there needs to be more incentives to convince lenders to lend money.

I don't see how that reasoning applies to one, but not the other circumstance.

The answer is right there. Bankruptcy is legally a recourse of the credit extended by Robinhood, and it is legally not one of student loans. That may or may not be morally correct or good policy, but it's certainly the current state of the world.

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#25

Post by caogecym »

hejja wrote: post #3

I'm aware options are complicated, but is someone able to expand on how this is possible? I guess if you short calls you have unlimited downside, no? but it was my understanding that the entire point of options was to cap downside (don't exercise) and maintain upside

Might be due to margins - i.e. buy/sell options with money borrowed from Robinhood.

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#26

Post by bananamerica »

redis_mlc wrote: post #4

Young folks: remember, you can always declare bk after a bad options investment. Unlike student loans.

Also, many people will agree that having a low income (and even being poor) may not be awesome, but sure beats being dead.

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#27

Post by loeg »

nine_k wrote: post #15

Imagine: "A 20 yo runs across highway in heavy truck traffic, dies". Well, yes. There is an obvious risk, and you either acknowledge this risk and act accordingly, or get struck. Fortunately, if you do a very bad investment, you can sell all your assets, go bankrupt, and keep your life. Too bad the poor guy chose to take his life. But this again looks like not doing enough homework. This is very sad. I wish these thi…

This is pretty tone-deaf.

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#28

Post by nine_k »

Kednicma wrote: post #6

From stories I heard growing up, a debt like $700k USD would get somebody killed by their bookies. But Robinhood isn't a bookie, I think, so what would have happened to this unfortunate soul instead? Bankruptcy and garnishing?

I can imagine the reason could be the insufferable feeling of guilt and shame, especially if the poor trader e.g. lent someone else's money and now would leave them broke.

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#29

Post by dragosmocrii »

nine_k wrote: post #15

Imagine: "A 20 yo runs across highway in heavy truck traffic, dies". Well, yes. There is an obvious risk, and you either acknowledge this risk and act accordingly, or get struck. Fortunately, if you do a very bad investment, you can sell all your assets, go bankrupt, and keep your life. Too bad the poor guy chose to take his life. But this again looks like not doing enough homework. This is very sad. I wish these thi…

That's a great idea! Even Github has better safety guards to make sure you don't delete a repository accidentally

Re: Robinhood 20yo trader with no income loses 700k on options, takes life

#30

Post by victor9000 »

Kednicma wrote: post #6

From stories I heard growing up, a debt like $700k USD would get somebody killed by their bookies. But Robinhood isn't a bookie, I think, so what would have happened to this unfortunate soul instead? Bankruptcy and garnishing?

Hell if a kid owed me 700k, I would seriously consider putting them through college just to increase the chances of ever seeing that money again.
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