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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

#161

Post by webmaven »

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. And no, this isn't wheat farmers hedging bad weather.

Even farmers hedging bad weather isn't what it used to be:

http://nategabriel.com/egblog/wp-content/uploads/2019/01/6-2...

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

#162

Post by limomium »

alexwebb2 wrote: post #111
nine_k wrote: post #87

Earlier quoted context omitted.

A person who goes on to operate a large table saw, very rational or not, should read a manual, and become acutely aware that cutting off their limbs is a very real danger. Anyone who sells access to such a tool should make sure of that happening. That's my point.

An app is not a table saw. And your comment here is at odds with the tone you used above.

Considering he managed to lose his life over the app, I'd say the comparison is fair.

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

#164

Post by grupthink »

caogecym wrote: post #25
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.

You can't trade options on margins.

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

#165

Post by AlEinstein »

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.

What’s heartbreaking is that he didn’t trade any leverage at all. He executed an options spread that was worth about $700k on each leg. Due to the nature of buying and selling options, the app showed his position as short $700k because the long leg hadn’t settled yet. All he needed to do was wait and he would have seen the balance go back to what he expected.

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

#166

Post by tarsinge »

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…

More generally statistics/probabilities and critical thinking.

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

#167

Post by AlEinstein »

formercoder wrote: post #8
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

RH doesn’t let you short naked calls, you have to hold shares as collateral, I’m not sure what happened.

Options spread.

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

#168

Post by AlEinstein »

whb07 wrote: post #22
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.

https://news.ycombinator.com/item?id=23523517

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

#169

Post by AlEinstein »

binarysolo wrote: post #73

Read a bit and wasn't sure of the exact nature of the 700k loss, but if he somehow got access to all that credit without the assets to back it it, it would seem like people can form a pact, where person A gets credit and bets X on a thing, person B bets the counterparty -X, have X be comically large, one person gets the payoff while the other declares bankrupcty, and basically "gain X/2 for enduring bankruptcy". (We…

https://news.ycombinator.com/item?id=23523517

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

#170

Post by vmception »

dx034 wrote: post #157
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.

While the similarity is that the Robinhood and Amazon losses were UI novelties which were both promptly resolved.

And you are missing that brokers routinely settle for much lower amounts in bad trades.

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