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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

#151

Post by waste_monk »

smabie wrote: post #65
bryananderson wrote: post #46

Earlier quoted context omitted.

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.

You occasionally hear of people making money by trading the inverse of what's popular on reddit's /r/wallstreetbets community. So I'd believe it.

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

#152

Post by dx034 »

chii wrote: post #139
AYBABTME wrote: post #66

Earlier quoted context omitted.

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…

Truly understanding risk in financial markets is incredibly hard and not intuitive. We can't use our every day intuition to warn us of risks on markets (other than easy money doesn't exist). But I don't think people would appreciate if you'd need a master in Finance or CFA to open a Robinhood account.

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

#153

Post by mD5pPxMcS6fVWKE »

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.

It's the other way around. With stocks, you can take loans and trade on margin. If something happens, like very large gap down in the morning, and they can't unwind your position quickly, you could end up in debt. It's a very rare situation in practice. With options, you can only lose what you have invested. Unless you write naked options, which I am almost sure is not allowed on Robinhood.

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

#154

Post by dx034 »

_binder wrote: post #38
doctoboggan wrote: post #20

Does anyone know who this is and if there is a way to verify what he is saying is true? I don’t know much about Robin Hood but people here seem to be indicating that it’s not possible to end up owing money like that. The tweets also seem to advertise for two other twitter accounts that give investing advice.

Let me just tell it is possible to make that kind of loss on Robinhood. Weather the tweets are real IDK.

I'd be surprised if that's true. No other broker allows this simply for the reason that Robinhood would otherwise have to pay up if their client can't respond to a margin call.

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

#155

Post by dx034 »

MattGaiser wrote: post #72
imcoconut wrote: post #53

If the quoted $700k loss was a glitch, is robinhood in any way liable here?

Most stock data firms make you agree that the information displayed may be inaccurate. If you want guaranteed accuracy, they make you pay through the nose.

Even for professional investors it frequently happens that you only know your exact PnL after markets close. With all automation there are still manual processes and software errors so manual trade reconciliation isn't that uncommon for high trading volumes.

But professional investors also have their own bookkeeping and deeper pockets to pay for losses.

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

#156

Post by ehsync »

This is tragic.

The consensus I've gathered is that this was a result of a stock option credit spread's short leg being assigned combined with a misunderstanding of the trading platform's reporting. If this is true, an analogy for the situation would be:

The individual bet on a coin flip, wagering $10 (representing the $700k) on heads and $9 (figurative amount representing the spread) on tails.

The outcome was tails.

The account immediately reflected the loss but not the win, displaying a -$10 balance.

When the $9 payout from the win would have settled, the account balance would have become -$1 instead of -$10.

The individual didn't realize the $9 payout was coming, and took his life in reaction to the -$10 balance.

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

#157

Post by dx034 »

vmception wrote: post #61

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 w…

The difference is this money would've gone to AWS. They could wave it without much of an issue. The counterparty for the option wasn't Robinhood but some other trader. The loss (if it ever existed) has to be paid by either the client or Robinhood. You can't just remove it. And for $700k many companies will go to great length to recover at least some of the money.

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

#158

Post by mD5pPxMcS6fVWKE »

sytelus wrote: post #83
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…

I think every high school student should have one day class dedicated on following topics and so many lives would be saved: 1. Folies of investments, how you can lose everything. 2. Folies of marriages, divorce laws and how you can lose everything. 3. Folies of gambling in casinos and how you can lose everything. 4. Folies of alcohol, tobacco and other soft drugs and how you can lose everything. Each of these class s…

I taught my children all of these. Except 2), as they are girls:)

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

#159

Post by AlchemistCamp »

brockwhittaker wrote: post #133
AlchemistCamp wrote: post #104

Earlier quoted context omitted.

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 optio…

The market is (mostly) efficient but that doesn't mean that the same number of people end up ahead a certain number of dollars as behind.

In a zero-sum game, it's entirely possible and common to have a small number of comparatively large winners and a large number of losers.

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

#160

Post by Traster »

This feels a bit like the tide pod challenge. It isn't necessarily RH's fault that a group of bored teenagers have decided to spend their spare time lying on the internet about options trading. It starts with a small group of trolls thinking it would be funny to bullshit about something and before you know it you've got a community that's a wonderful mix of people in on the joke and people actually burning their life savings (and more) on complex financial instruments without even the bare understanding of their mathematical properties.

Tide never advertised their laundry detergent as edible, but they still had to deal with it and come out and actually advertise that you shouldn't eat tide pods. Similarly, I think, with Robinhood I think they actually have a responsibility to actually inform their customers the real risks associated with what they're doing.

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