Robinhood 20yo trader with no income loses 700k on options, takes life • Hacker News Board

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

#61

Post by vmception » Mon, Jun 15, 2020, 3:48 AM UTC

I had a $200,000 bill on AWS last week. I made a support query and got it removed.

I could have written a suicide note, but then I didn't. It actually never crossed my mind. It was so inconsequential that I was prepared to just move my static website off of that S3 bucket into another AWS account bucket, and remove my credit card which prompts Amazon to just terminate the account. If it went to actual collections I would have been ready to discharge it and deal with the consequences of not being able to get airlines miles on a premium credit card for a few years.

In 2020, this is considered tone deaf.

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

#62

Post by Ghjklov » Mon, Jun 15, 2020, 3:48 AM UTC

amiga_500 wrote: post #56

Ghjklov wrote: post #17

On the flip side, if this trader instead made 700k on options, he'd be celebrated as a hero who beat the market at such a young age and Robinhood would be an empowering role in elevating the young and disenfranchised. That is just the reality of the market. I hope this is not setting up so that the powers that be, and the market makers can demonize trading and then regulate away all the new blood who wants to get in…

People "made" 700k for him to lose it, less fees. Because speculative trading is a zero sum game, it creates no wealth. And no, this isn't wheat farmers hedging bad weather.

I agree

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

#63

Post by unishark » Mon, Jun 15, 2020, 3:48 AM UTC

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?

Presumably the debt would get sold to debt collectors for pennies on the dollar and they would try to get what they can, perhaps settling for some fraction of the amount. Bankruptcy would probably make it all go away.

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

#64

Post by wpietri » Mon, Jun 15, 2020, 3:50 AM UTC

amiga_500 wrote: post #56

Ghjklov wrote: post #17

On the flip side, if this trader instead made 700k on options, he'd be celebrated as a hero who beat the market at such a young age and Robinhood would be an empowering role in elevating the young and disenfranchised. That is just the reality of the market. I hope this is not setting up so that the powers that be, and the market makers can demonize trading and then regulate away all the new blood who wants to get in…

People "made" 700k for him to lose it, less fees. Because speculative trading is a zero sum game, it creates no wealth. And no, this isn't wheat farmers hedging bad weather.

Yeah, I think fees and externalities mean that speculation is a negative-sum game. I used to work for financial traders, but I quit that industry because I decided it was, however lucrative, a net societal negative.

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

#65

Post by smabie » Mon, Jun 15, 2020, 3:51 AM UTC

bryananderson wrote: post #46

Ghjklov wrote: post #17

On the flip side, if this trader instead made 700k on options, he'd be celebrated as a hero who beat the market at such a young age and Robinhood would be an empowering role in elevating the young and disenfranchised. That is just the reality of the market. I hope this is not setting up so that the powers that be, and the market makers can demonize trading and then regulate away all the new blood who wants to get in…

There is not an equal probability of a day trader making 700k and losing 700k trading options. Market makers won’t demonize day trading—the “new blood” are their best marks.

The efficient market hypothesis says otherwise. If it was easier to lose money (ignoring trading costs and spreads) than it was to make money, I could easily beat the market by doing the opposite of the average joe loser.

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

#66

Post by AYBABTME » Mon, Jun 15, 2020, 3:51 AM UTC

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…

My 1 year old has no preconception that running across the highway is dangerous, she'd do it in an instant if I let her. We'll spend the next decade teaching her that kind of stuff:

- the oven doesn't look dangerous, but it's hot

- this water looks like the other one, but it's boiling and will hurt

- a car can drive across the street and run over you

- the electric outlet looks passive but it'll electrocute you

Aside for very primal fears, people aren't born with a plethora of "things to know are dangerous in the modern world". So I'm not surprised that a 20yo would end up not knowing that there's a risk and that it's "obvious".

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

#67

Post by smnrchrds » Mon, Jun 15, 2020, 3:51 AM UTC

mrpopo wrote: post #9

redis_mlc wrote: post #4

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

Why should a bad options investment be better protected than studying?

For the record, I don't agree with the status quo. I think student loans should be dischargeable in bankruptcy. Other replies have brought many good points. I have one more to add:

There is one important difference between student loan and other loans. If your mortgage gets foreclosed, you lose your house. Your car loan, you lose the vehicle. Margin, you lose your stocks and investments and the collateral. In all these cases, when you cannot pay back the loan, the lender takes away your right to continue enjoying any benefits from the loan. You cannot not repay your mortgage but keep the house free and clear. Thus there is a strong incentive not to default on these loans.

This is fundamentally different from student loans. If you do not repay your student loans, the bank cannot wipe the knowledge you gained from your brain and sever the contacts you made in university. You will continue enjoying all the benefits of the education. Thus there would be a strong incentive to declare bankruptcy as soon as you graduate (because you have little to no assets to lose) if this were an option.

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

#68

Post by prithvi24 » Mon, Jun 15, 2020, 3:52 AM UTC

This is super unfortunate, really sorry to hear about it

Robinhood, is like any tool, and can be used in a positive or negative way.

I've been telling my friends using Robinhood to check out https://www.amazon.com/Random-Walk-Down-Wall-Street/dp/03933...

Commission free ETFs and blue chip stocks are great ways to start building wealth (especially for novice traders who are not interested in specific tax advantages). Everyone should really read the book before trading

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

#69

Post by nine_k » Mon, Jun 15, 2020, 3:54 AM UTC

JKCalhoun wrote: post #48

nine_k wrote: post #37

Earlier quoted context omitted.

Please notice how highways are full of warning signs and barriers that prevent you from accidentally running across them. Same with construction sites, or heavy industrial plants. Maybe other risky places should have more warning signs, so that an optimistic 20-yo would have to stop and think before acting.

So if there are warning signs you're okay with allowing someone with no income to leverage to the tune of $700K? I think this is the basis for the accusation of tone-deafness.

Please note that I did not even say anything about taking the leverage, only a about signing up.

Power tools have safety feature; the leverage tool should, too. AFAIK Robinhood won't allow you to make a naked call, you have to show that you have enough to pay. Either their safety feature failed (very bad, needs fixing and constant checking), or the poor trader used something else as a collateral, and that could be an important part of the tragic outcome.

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

#70

Post by logicchains » Mon, Jun 15, 2020, 3:56 AM UTC

amiga_500 wrote: post #56

Ghjklov wrote: post #17

On the flip side, if this trader instead made 700k on options, he'd be celebrated as a hero who beat the market at such a young age and Robinhood would be an empowering role in elevating the young and disenfranchised. That is just the reality of the market. I hope this is not setting up so that the powers that be, and the market makers can demonize trading and then regulate away all the new blood who wants to get in…

People "made" 700k for him to lose it, less fees. Because speculative trading is a zero sum game, it creates no wealth. And no, this isn't wheat farmers hedging bad weather.

>Because speculative trading is a zero sum game, it creates no wealth.

Speculative trading is a key component of markets. People speculate that X is undervalued, so they invest in X, this gives X more resources, so resources are allocated based on what people think has most potential for growth. People who continuously make bad predictions get filtered out of the market, so "what people think has most potential for growth" comes to approximate "what has most potential for growth", and we get efficient resource allocation.