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

Post by manigandham » Thu, Jun 18, 2020, 9:45 PM UTC

BoorishBears wrote: post #199

wdr1 wrote: post #115

Earlier quoted context omitted.

He wasn't a professional trader or anything like that. He was a kid with no income. Was they did they allow him access to so much leverage?

It's now coming out that he didn't have access to that kind of leverage. Robinhood will show one leg of a multi-leg options strategy as your balance in certain cases. So you have theoretically sold 700k in calls, but it's covered by a near equal amount of options being bought, there is no scenario in which you could actually owe 700k Yet Robinhood's engineers didn't properly implement the feature, so their account ba…

Post by manigandham » Thu, Jun 18, 2020, 9:53 PM UTC

dx034 wrote: post #150

frank2 wrote: post #145

Earlier quoted context omitted.

>for someone to "win", someone else has to lose Not necessarily: farmers use options as a kind of "price insurance" to insulate themselves from changes in the price of their crop between now and when they are ready to sell it. Yes, for one party in an options trade to gain X dollars the other party must lose X dollars, but both parties can gain in what the economists and decision theorists call expected utility. We h…

Same with airlines, hedging oil prices via futures and options is incredibly important for them to be able to price out flights a year in advance. But that doesn't explain why a 20 year old with no income should have access to these instruments. There's a reason most banks wouldn't allow that, in the end the platform probably has to cough up the money.

Post by manigandham » Thu, Jun 18, 2020, 9:58 PM UTC

hogFeast wrote: post #92

nugget wrote: post #44

Earlier quoted context omitted.

If you read down into the Twitter thread, it seems like the -$700k net balance ("debt") may have simply been a display "error" within Robinhood's system: "The unfortunate thing is there are certain situations where RH will show this kind of amount due, but it is an anomaly for 24 to 48 hours as things process when selling calls and puts. Uneducated traders think they actually owe these amounts which is not close to a…

Yep, but try explaining how a supposedly firm made up of "SV Ivy League geniuses" show clients that number. Things that should make sense often don't. (Just FYI, if you go on r/wallstreetbets, you will see this countless times...the software not showing the correct position, the software not showing the correct position and then forcing users to trade such that they lose money, it goes on and on and on...this busines…

Post by X-Istence » Sun, Jun 21, 2020, 3:50 AM UTC

mam2 wrote: post #149

X-Istence wrote: post #81

Earlier quoted context omitted.

> It also appears RH users get margin accounts by default, at least from everything I've read. If that's true, it's probably the real problem. No, you have to explicitly opt-in to it.

Nope