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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

#131

Post by JKCalhoun »

nine_k wrote: post #69
JKCalhoun wrote: post #48

Earlier quoted context omitted.

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…

Noted. Thanks for clarifying.

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

#132

Post by huac »

konamicode wrote: post #126
nostrademons wrote: post #113

Earlier quoted context omitted.

It's a dark pattern, but there's nothing illegal about it. Their privacy policy states "We may also share information with others in an aggregated or otherwise anonymized form that does not reasonably identify you directly as an individual." Knowing that there exists someone who is about to buy TSLA does not identify that person, and yet is still incredibly useful to a market-maker. Selling data you've collected (wit…

If I am a Robinhood customer who is investing for the long term instead of day trading - should I care?

not investment advice: no, you shouldn't. the spreads you get can be tighter (good when you want to buy and sell), and any hypothetical front running of your order would lead to miniscule slippage over the long-run. buying SPY and TLT is more or less the same experience in robinhood as it is in schwab, TDA, etc.

even as a day trader i wonder if it matters. i would be more annoyed that RH doesn't allow options on indices or futures, which leads to RH traders loading up on similar-but-not-identical products (eg USO as a substitute for oil futures or whatever VIX etf's remain standing)

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

#133

Post by brockwhittaker »

AlchemistCamp wrote: post #104
smabie wrote: post #65

Earlier quoted context omitted.

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.

The efficient market hypothesis says nothing of the sort. Upside and downside with options aren't symmetrical. Unlike when purchasing long positions in stocks, when trading options it's possible to lose many times more money than you initially put in. You also really can't ignore the spreads. Market makers win pretty consistently and everyone else is playing a worse than zero-sum game.

Adjusted for probability, upside and downside are theoretically the same with options.

> Unlike when purchasing long positions in stocks, when trading options it's possible to lose many times more money than you initially put in.

The converse is also true. It’s entirely possible to almost guarantee yourself a tiny profit and almost no downside risk as it is to create infinite risk.

So EMH definitely maps to the options market.

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

#134

Post by hcknwscommenter »

klyrs wrote: post #123
nine_k wrote: post #74

Earlier quoted context omitted.

That could also be problematic: you mighth need to know what the average joe loser does instantly, or maybe even before the fact, to turn an actual profit. Though doing the contrarian move is sort of common wisdom: "sell when everyone is buying, buy when everyone is selling", of course if you understand what to sell/buy in either case.

> you mighth need to know what the average joe loser does instantly, or maybe even before the fact, to turn an actual profit. As in, run a day trading service and analyze anonymized trading data?

There was an SEC enforcement action a few years ago where they went against a platform trading company that catered to especially unsophisticated and risk taking clientele. They never actually put on any of the trades their clients were "making." They just pocketed the money and when the clients inevitably lost it all, the outcome was the same for the client.

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

#135

Post by yongjik »

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…

> On the flip side, if this trader instead made 700k on options, he'd be celebrated as a hero ...

Wait, what, why would I celebrate someone who basically went to a casino and hit a jackpot, and what the hell does that have to do with empowering anyone other than casino owners.

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

#137

Post by huac »

cowmoo728 wrote: post #21
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/comm…

ah the follies of American-style options...

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

#138

Post by toast0 »

logicchains wrote: post #121
Ghjklov wrote: post #107

Earlier quoted context omitted.

Why is that okay for them to do that? Genuinely curious.

It gives the retailers a better price. The HFTs can quote more tightly (offer smaller spreads) in their dark pools, because they know some large, well-informed hedge fund isn't going to come along and roll them over.

Adding on, this can be of benefit to all three parties of the trade.

The brokerage gets paid for order flow.

The retail investor will often get a price better than the quoted market price, and the brokerage has a duty of best execution per SEC regulations, so the prices can't be worse very often; the duty is examined in aggregate, so some trades may execute poorly. Order flow payments are a part of how brokerage expenses are funded, one of the factors in the reducing and eventually eliminating of comission charges.

The HFT benefits, as you said, because they're trading against retail investors, and can use techniques appropriate for trading against random trading, rather than trading against sophisticated traders (or other HFT).

The downsides, I guess, are for the traders whose orders are on the other exchanges --- they didn't get your trade, so they will wait longer, and may not get as good a price as if you traded with them. Also, these dark pools may have less timely public reporting on trades, leading to an information gap? But, my understanding is there's already a lot of retail trading with less timely reporting as odd lots (not a multiple of 100 shares) may not have real time reporting.

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

#139

Post by chii »

AYBABTME wrote: post #66
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…

You're comparing a 20yr old to a 1yr old. there's some personal responsibility there - how can a 20yr old not know?

The underlying problem with the 20yr old is likely mental instability and depression - far too common amongst the young. The gamble on options for a way out, and having seen this fail, decides that their life isn't worth living any more.

It's a deeper problem than insurmountable debt and not knowing the risks.

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

#140

Post by downerending »

This is a horrible story, no doubt.

Broadly, unless you have a million dollars to lose, you have no business putting your money in anything but mutual funds. Even there, only low-overhead index funds are a good call.

For most people, buying individual symbols is very foolish. And options, etc., is simply insane.

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