Robinhood 20yo trader with no income loses 700k on options, takes life(twitter.com)
twitter.com
Robinhood 20yo trader with no income loses 700k on options, takes life
https://twitter.com/BillBrewsterSCG/status/1271802132979748866
216 comments
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 things were written in large red letters on the signup page for a trading account, and one would have to type them in first person, like "I realize that I can lose all my possessions as a result of a bad trade" (no copy-paste allowed) to even accept the terms of service.
[Edited: spelling]
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 things were written in large red letters on the signup page for a trading account, and one would have to type them in first person, like "I realize that I can lose all my possessions as a result of a bad trade" (no copy-paste allowed) to even accept the terms of service.
[Edited: spelling]
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".
- 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".
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.
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.
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.
This reminds me of this brilliant interview with Ricky Gervais about atheism and religion : https://youtu.be/rYnjDCZUV6A?t=43
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 should be given by 2-3 people who actually lose everything in these cases.
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 should be given by 2-3 people who actually lose everything in these cases.
Also some exercises on how everything that sounds too good to be true is a scam.
They already teach math...
Ideally, it would be great for a country to have systems in place so that the worst you can possibly lose is less than everything.
Technically I think there are lots of such laws. Like protecting the house you live in.
But in the case of things like taxes and child support, you can ultimately lose a lot more than everything.
But in the case of things like taxes and child support, you can ultimately lose a lot more than everything.
That would definitely fuck up the housing market for starters.
how would you make it so that i cant bet all my money
More generally statistics/probabilities and critical thinking.
I taught my children all of these. Except 2), as they are girls:)
You're doing them a grave disservice, then. If you're a woman who managed to build up savings beforehand, or was trusting enough to be the main earner while your husband was going through school, you can end up the worse off financially for making a poor marriage decision.
And don't forget to mention all the women who accept diminished lifetime earnings because they were the primary caregivers for the couple's children, and then find themselves struggling to support those kids and themselves if their husbands leave, no matter what child support was awarded on paper. Even if the father does come through on the court-ordered payments, she's never going to get that decade of her career back, or the retirement savings she missed out on.
And don't forget to mention all the women who accept diminished lifetime earnings because they were the primary caregivers for the couple's children, and then find themselves struggling to support those kids and themselves if their husbands leave, no matter what child support was awarded on paper. Even if the father does come through on the court-ordered payments, she's never going to get that decade of her career back, or the retirement savings she missed out on.
That's a great idea! Even Github has better safety guards to make sure you don't delete a repository accidentally
This is pretty tone-deaf.
Exactly the kind of comment I expected to see at the top when I clicked on these comments, really. HN loves to assume that everyone is a perfectly rational person who has infinite time to read and comprehend all minutae before doing anything, and anyone who fails to do this clearly had whatever happens to them coming.
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.
Anyone who sells access to such a tool should make sure of that happening. That's my point.
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.
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.
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.
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.
Noted. Thanks for clarifying.
> no income to leverage to the tune of $700K?
if robinhood is willing to take on the risk of a counterparty bankruptcy, i don't see why not. Robinhood is on the hook for lending the margin, not the boy.
if robinhood is willing to take on the risk of a counterparty bankruptcy, i don't see why not. Robinhood is on the hook for lending the margin, not the boy.
[deleted]
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.
To give a bit perspective: in many countries there are mostly no warning signs and barriers on highways. Sometimes a few trees, the occasional speed limit sign and warning of steep slopes. Only on places where accidents are so common they add barriers to prevent cars going into oncoming lanes, but that doesn’t prevent accidents from happening.
It’s tragic that the 20yo died, many sites warn that trading is risky. What they shouldn’t allow is to trade with more money than you can prove to possess.
It’s tragic that the 20yo died, many sites warn that trading is risky. What they shouldn’t allow is to trade with more money than you can prove to possess.
How exactly? Even that whole tweet thread is placing blame on Robinhood who offers worse and less margin/leverage than normal brokers?
If there is energy to direct, it has more to do with people that don't have a self preservation instinct and deciding whether we actually want to add one back to them. Very different than misattributing disdain towards the action they ascribed to their suicide.
It is pretty tone deaf to get this mixed up.
If there is energy to direct, it has more to do with people that don't have a self preservation instinct and deciding whether we actually want to add one back to them. Very different than misattributing disdain towards the action they ascribed to their suicide.
It is pretty tone deaf to get this mixed up.
> But this again looks not doing enough homework.
It seems naive to read a tweet with a little information about someone completing suicide, and then assume that if they had known (more) about bankruptcy they would not have done it.
There are other things that we can't read out of the tweet that are really important in these situations, like access to social support.
It seems naive to read a tweet with a little information about someone completing suicide, and then assume that if they had known (more) about bankruptcy they would not have done it.
There are other things that we can't read out of the tweet that are really important in these situations, like access to social support.
I know others who make profit from borrowing leverage and bet that Robionhood is doing same.
What you propose is nice, but against platform financial interests.
What you propose is nice, but against platform financial interests.
I bet having to publicly explain real credit card interest rates, or the components of food, or conflicts of interest for top corporate officers, can be against some powerful interests.
But I suppose this such cases are some of the few cases where regulations (not even necessarily state-imposed) really work in the public interest.
But I suppose this such cases are some of the few cases where regulations (not even necessarily state-imposed) really work in the public interest.
I mean, I assume he lost significantly more than all his possessions
here we go again. This is like one of these "more people are killed by their washing mashines than by terrorism" takes.
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.
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.
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.
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.
nb other trading platforms do try to educate their consumers. rh makes it very easy to trade options.
Something seems off here. The person would have had to have significant assets or collateral to end up negative; regardless of age and income.
It just doesn’t work like that.
It just doesn’t work like that.
You're right, but due to Robinhood's terrible UI/UX, when you hold a spread and the short leg gets assigned, it shows your account as owing an astronomical amount. In reality, you have an opposite leg that gets exercised and you're only out the difference in the spread (which that risk is based on your account balance/margin/etc).
This kid didn't lose $700k, his account just shows -$700k until Monday morning when it will update with the other leg being exercised and he probably lost a few grand instead. Here's a similar situation where someone thought they lost $172k, when in reality they lost $2k. [1]. It's a combination of a shitty UI and people not understanding option spreads.
[1] https://old.reddit.com/r/wallstreetbets/comments/aohvow/hi_t...
This kid didn't lose $700k, his account just shows -$700k until Monday morning when it will update with the other leg being exercised and he probably lost a few grand instead. Here's a similar situation where someone thought they lost $172k, when in reality they lost $2k. [1]. It's a combination of a shitty UI and people not understanding option spreads.
[1] https://old.reddit.com/r/wallstreetbets/comments/aohvow/hi_t...
This is exactly right.
This story just got a lot more tragic... He maybe lost $10k. Maybe nothing at all.
Hell, he might have made money, but the RH UI just showed him this abysmal number.
Or there's more to this story. I would be interested in knowing how long the issue had been going on, and if RH support had been contacted.
This story just got a lot more tragic... He maybe lost $10k. Maybe nothing at all.
Hell, he might have made money, but the RH UI just showed him this abysmal number.
Or there's more to this story. I would be interested in knowing how long the issue had been going on, and if RH support had been contacted.
Every broker shows the same thing. Sometimes the legs are exercised on different days leading to the large discrepancy until the other side is used to offset. It's ultimately up to the trader to understand their trades.
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
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/comments/9guf3n/doh_some_...
https://www.reddit.com/r/RobinHood/comments/9guf3n/doh_some_...
Robin Hood has various tricks allowing your buying power to be inflated artificially, there have been a bunch of reports about it.
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.
In the EU retail traders are permitted access to margin, but brokers are required to eat any loss exceeding the value of the account. It's not enough, because it still means new "traders" are exposed to amplified volatility, thus ensuring their accounts will blow out much faster than they may have otherwise, and positions that might have recovered in a cash account get margin called and closed out at the worst possible moment.
Leverage/margin access should require similar levels of study as a private pilot's license
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.
In the EU retail traders are permitted access to margin, but brokers are required to eat any loss exceeding the value of the account. It's not enough, because it still means new "traders" are exposed to amplified volatility, thus ensuring their accounts will blow out much faster than they may have otherwise, and positions that might have recovered in a cash account get margin called and closed out at the worst possible moment.
Leverage/margin access should require similar levels of study as a private pilot's license
> 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.
No, you have to explicitly opt-in to it.
Nope
You have to upgrade to Robinhood Gold (which is free for the first month, then $5 a month thereafter).
If and when you open a Robinhood account you have to opt-in to gold to be able to invest with margin.
https://robinhood.com/us/en/support/articles/overview/
If and when you open a Robinhood account you have to opt-in to gold to be able to invest with margin.
https://robinhood.com/us/en/support/articles/overview/
RH doesn’t let you short naked calls, you have to hold shares as collateral, I’m not sure what happened.
Options spread.
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.
Live by the sword, die by the sword.
Wait, is it possible to "owe" money to Robinhood? I have never used them but I was under the assumption that you can only lose the money you deposited, because of the leverage, but you can not go negative.
The tweet seems to imply that too, but a lot of the comments here look misinformed.
The tweet seems to imply that too, but a lot of the comments here look misinformed.
I think that’s the default for any brokerage product.
However, when you apply for options trading, you have the option to add margin to your account. It’s essentially just a tick box. It appears from the twitter thread that this user unknowingly added margin to his account, traded on margin, then had a really big margin call.
However, when you apply for options trading, you have the option to add margin to your account. It’s essentially just a tick box. It appears from the twitter thread that this user unknowingly added margin to his account, traded on margin, then had a really big margin call.
You owe your broker if you trade on margin
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 can have some variation to sweeten the pot, where the losing person gains X/2+C, winner gains X/2-C, where C= some additional money to deal with bankruptcy hassles.)
Presumably this doesn't actually happen since it's doable, so I'd be curious what -700k losses practically means.
Presumably this doesn't actually happen since it's doable, so I'd be curious what -700k losses practically means.
This sounds like fraud.
Person A would have an asset worth X/2, in the form of his contract with person B. When A declares bankruptcy, his X/2 would be used to partially pay his debtors. This only way this scheme works is if A conceals this during the bancrupty. For comically large X, you can expect to have a team of lawyers and forensic accountants look through your books. If they catch on, you get nothing except a potential fraud conviction.
Person A would have an asset worth X/2, in the form of his contract with person B. When A declares bankruptcy, his X/2 would be used to partially pay his debtors. This only way this scheme works is if A conceals this during the bancrupty. For comically large X, you can expect to have a team of lawyers and forensic accountants look through your books. If they catch on, you get nothing except a potential fraud conviction.
Yeah, that makes sense - for a simple scheme like this I'm sure there's some expectation you can't just go around abusing bankruptcy like this.
This bargain exists already- it's called a hedge fund.
America is a business. Get rid of regulation and let people fend for themselves.
https://en.wikipedia.org/wiki/Bucket_shop_(stock_market)
https://en.wikipedia.org/wiki/Bucket_shop_(stock_market)
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.
But professional investors also have their own bookkeeping and deeper pockets to pay for losses.
[deleted]
This is going to make it less fun for me to go to work tomorrow and sell /r/wsb financial derivatives whose value they couldn't begin to understand.
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.
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.
This is a huge fuck-up on Robinhood's part, they should have never given him that sort of leverage.
Any relatively new investor trading options is also a huge mistake, it is surprising he was approved for an account where he can even use options.
Any relatively new investor trading options is also a huge mistake, it is surprising he was approved for an account where he can even use options.
All I have done is looked for somewhat stable dividend payers, bought those, and held them until various unpleasant circumstances forced me to liquidate. The service I am using now has good guardrails, nice screeners, very responsive customer service, and I am pretty happy with them. The first one tried to look like it was out of Trading Places and was so confusing that I didn’t manage to make a trade on it before dumping it.
At the least I know I don’t know everything in stocks. I know enough to ask questions when I don’t understand. My account is still set to zero margin and will stay there for the time being.
At the least I know I don’t know everything in stocks. I know enough to ask questions when I don’t understand. My account is still set to zero margin and will stay there for the time being.
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.
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.
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.
And you are missing that brokers routinely settle for much lower amounts in bad trades.
no it's totally fine. In fact I think that knowing that if you send a groveling email to aws support they'll generally give you a hand should be on their developer doco.
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
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
This is obviously tragic, but there's a reason options have a reputation as risky investments and probably not a great choice for most beginning investors. In any case, this market is incredibly risky and difficult for most any trader to predict. Most established brokerages have tighter rules around margin trading precisely for this reason, and I wonder how many 700k losses robin hood will eat before implementing similar restrictions. He probably didn't actually owe 700k in any case; I'm guessing it was just some delay or glitch.
Schwab makes this based on levels you're allowed to do it at. Also it has limits based on what you're cleared to cover.
He didnt actually lose 700k it was a UI problem.
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 their game.
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.
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.
The warren buffets and medallion funds of the world have much better information and resources that Joe Loser. EMH just says that all the publicly known information is priced in almost instantaneously... It doesn't say much about how that profit from those price changes are distributed. It also says nothing about non public information. Unfortunately you're competing with a bunch of motivated people who have access and analysis techniques that you simply do not have, and this data gets priced in by them exploiting their information and analysis to make trades which alter the price of the market to represent the true value.
In a very roundabout way, EMH says, people with access to information will perform arbitrage trades based on that information as soon as it is available. If you are not those people, you will just have to ride the rising market.
In a very roundabout way, EMH says, people with access to information will perform arbitrage trades based on that information as soon as it is available. If you are not those people, you will just have to ride the rising market.
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.
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.
They are symmetric in the sense that you can both buy and sell options, so whatever payoff curve you get e.g., by buying an option (say unlimited downside and fixed upside) you can sell the same option to get the mirrored outcome (unlimited upside, fixed downside).
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.
> 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.
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.
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.
Most brokers aren't allowing regular people to sell tons naked of puts or calls. For almost all retail option traders, their losses are fixed.
Something something Robinhood box spread something
aka the legend of 1r0nyMan
See also: https://www.marketwatch.com/story/trader-says-he-has-no-mone...
aka the legend of 1r0nyMan
See also: https://www.marketwatch.com/story/trader-says-he-has-no-mone...
There are firms that do exactly this. Robinhood's business model is to sell the order-flow data of its users to HFT hedge funds, who then take the opposite side of the trade. It's proven very profitable both for Robinhood and for funds that do this.
Its quite competitive citadel makes money. But Citi bought a company and then sold it. KCG went bust ...
The big money is trading options, etfs, equities,cme futures against each other and against swaps. But for swaps you need an otc desk.
The big money is trading options, etfs, equities,cme futures against each other and against swaps. But for swaps you need an otc desk.
patio11's "How Discount Brokerages Make Money" is worth a read: https://www.kalzumeus.com/2019/6/26/how-brokerages-make-mone... for those who are interested.
Why is that okay for them to do that? Genuinely curious.
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 (without identities attached) is legal and largely unregulated. And the actual transaction is an ordinary B2B customer relationship.
Amazingly, a significant number of Robinhood customers are aware that they do this and don't care.
Amazingly, a significant number of Robinhood customers are aware that they do this and don't care.
Why is it a dark pattern? Brokers get the best price for their clients this way.
If I am a Robinhood customer who is investing for the long term instead of day trading - should I care?
No for a few reasons.
All the other major retail brokerages do this, unless they allow you to provide specific routing instructions (which usually comes at a cost, but I haven't checked lately). Everybody's doing it doesn't make it right, but it makes it unavoidable.
It's actually usually good for you --- your brokerage has a duty of 'best execution', so they can only route your trades to the HFT when the quotes are the same or better and they expect the HFT trade to complete as well as if they routed it to the other market. Often that means you'll get a better price, or more likelyhood of a complete trade, but some tradea might have executed better at another venue.
There's much bigger things to care about, like your brokerage's track record of availability or lack thereof during the trading day, how confusing their UI is for the things you want to do, if their means of access work with you (some people want local offices, which excludes some brokerages), fees and charges for services, including hidden fees like below market interest on deposits or above market interests on margin loans (but please don't have margin loans, cause it's usually a bad idea), etc.
All the other major retail brokerages do this, unless they allow you to provide specific routing instructions (which usually comes at a cost, but I haven't checked lately). Everybody's doing it doesn't make it right, but it makes it unavoidable.
It's actually usually good for you --- your brokerage has a duty of 'best execution', so they can only route your trades to the HFT when the quotes are the same or better and they expect the HFT trade to complete as well as if they routed it to the other market. Often that means you'll get a better price, or more likelyhood of a complete trade, but some tradea might have executed better at another venue.
There's much bigger things to care about, like your brokerage's track record of availability or lack thereof during the trading day, how confusing their UI is for the things you want to do, if their means of access work with you (some people want local offices, which excludes some brokerages), fees and charges for services, including hidden fees like below market interest on deposits or above market interests on margin loans (but please don't have margin loans, cause it's usually a bad idea), etc.
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)
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)
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.
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.
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.
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?
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.
> 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.
Whoa. That is so elegant in it's simplicity. Evil, certainly, but elegant.
And now I'm imagining more elaborate versions that incorporate the Baltimore Stockbroker scam to convince the clients to invest (and lose) even more money...
Whoa. That is so elegant in it's simplicity. Evil, certainly, but elegant.
And now I'm imagining more elaborate versions that incorporate the Baltimore Stockbroker scam to convince the clients to invest (and lose) even more money...
I think you're right. By the time you know what everyone is buying/selling with any certainty, the boat has already sailed.
I mean, if you just want to be contrarian, watch your holdings for what's going up over whatever period, and sell that --- that's what everyone is buying.
Look over the whole market for whst is going down, and buy that, that's what everyone is selling. Every finance information outlet ever tells you the day/month/year's biggest winners and losers, and most people aren't watching that and taking the contrarian position, or the winners and losers would be pretty boring.
Look over the whole market for whst is going down, and buy that, that's what everyone is selling. Every finance information outlet ever tells you the day/month/year's biggest winners and losers, and most people aren't watching that and taking the contrarian position, or the winners and losers would be pretty boring.
You can easily beat the market using the wheel at a minimum but the time investment/return aren't ideal.
There are posts below that will decry listen to Buffet and others however their accounts are so large listening to them is a disservice to yourself. Also the larger players have larger trades so their strategies are much different from a regular trader and there are lots of places for small accounts (under $5m) to make money.
There are posts below that will decry listen to Buffet and others however their accounts are so large listening to them is a disservice to yourself. Also the larger players have larger trades so their strategies are much different from a regular trader and there are lots of places for small accounts (under $5m) to make money.
You can't even take the short side of a spx put with less than a US Lifetime income of capital.
No one makes money on symmetrical markets, and they therefore are unpopular.
No one makes money on symmetrical markets, and they therefore are unpopular.
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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.
This was interesting to think about. I think the efficient market hypothesis implies only that a random selection of stocks is equally likely to be market beating rather than market performing. $5 of imaginary internet money says this poor dude was on a Telegram group telling him what to buy and sell
It's trivial to lose money by trading outside of the efficient frontier.
But the possibility exists. That you can make money by simply trading stocks, without actually putting much in too much work and time (outside of research and education).
I have a hunch, just a feeling, that the powers that be prefer that we normal people not know about how they make money by simply trading around stocks with excess money they have laying around.
I have a hunch, just a feeling, that the powers that be prefer that we normal people not know about how they make money by simply trading around stocks with excess money they have laying around.
Nonsense, they advertise lotteries everywhere.
Lotteries aren't really the same thing as holding shares in a company.
>he'd be celebrated as a hero who beat the market at such a young age
He'd be a lucky fool in my book.
This sort of trading is gambling, pure and simple. Winning doesn't retroactively make it a good decision to play.
He'd be a lucky fool in my book.
This sort of trading is gambling, pure and simple. Winning doesn't retroactively make it a good decision to play.
The entire financial market is gambling, it's just a matter of degree of risk, and the higher the risk the higher possible return. People need to stop fooling themselves otherwise.
investing in a business (buying stocks) is not the same as speculating. Options trading is speculative in nature, because for someone to "win", someone else has to lose.
That is not the case for stock purchases - the stock appreciates in value because the business it represents appreciated in value.
Just because something has risk, doesn't automatically make it gambling.
That is not the case for stock purchases - the stock appreciates in value because the business it represents appreciated in value.
Just because something has risk, doesn't automatically make it gambling.
>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 have all heard the saying that after a person's income reaches $80,000 or so per year, further increases in income don't improve happiness as much as the previous increases. In other words, a person's utility function is not a linear function of income, but rather the curve flattens out a little after about $80,000 a year.
Similarly, just because an options trade is zero-sum in dollars doesn't mean it is zero-sum in the utility conferred on the two parties to the trade.
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 have all heard the saying that after a person's income reaches $80,000 or so per year, further increases in income don't improve happiness as much as the previous increases. In other words, a person's utility function is not a linear function of income, but rather the curve flattens out a little after about $80,000 a year.
Similarly, just because an options trade is zero-sum in dollars doesn't mean it is zero-sum in the utility conferred on the two parties to the trade.
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.
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.
Income doesn't matter. As long as your account has funds, you trade with those until they're depleted.
You don't get access to options by default, and even then there are levels of approvals before you can do advanced trades. If they require margin, your broker will keep watch and instantly liquidate if you go negative. That's the whole point of a "margin call".
It's very rare that a broker will lose money because of a retail trader.
You don't get access to options by default, and even then there are levels of approvals before you can do advanced trades. If they require margin, your broker will keep watch and instantly liquidate if you go negative. That's the whole point of a "margin call".
It's very rare that a broker will lose money because of a retail trader.
> That is not the case for stock purchases - the stock appreciates in value because the business it represents appreciated in value.
There is absolutely no guarantee that this is the case. It's still a gamble. It's just that by the time something IPO's it's much less likely to fail, but it's still possible. Private shares the same. Hence, my original point, it's just a matter of degree of risk.
There is absolutely no guarantee that this is the case. It's still a gamble. It's just that by the time something IPO's it's much less likely to fail, but it's still possible. Private shares the same. Hence, my original point, it's just a matter of degree of risk.
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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?
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 balance showed the calls as if they had been sold naked, resulting in -700k as a balance.
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 balance showed the calls as if they had been sold naked, resulting in -700k as a balance.
There's nothing to implement differently, this is how all brokers show it because one leg might be exercised anytime, and if it happens before the broker executes the other side you will see a big discrepancy in your account. It's up to you to understand your trades.
Guessing it's related to a bug on the platform from last year.
https://www.bloomberg.com/news/articles/2019-11-05/robinhood...
https://www.bloomberg.com/news/articles/2019-11-05/robinhood...
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.
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.
that plus the industry pulling in a lot of smart people who could have spent their time elsewhere
speculating is not a net societal negative - it allows one party to trade the risk away.
But of course, the same instrument can be abused by gamblers. But it's not the instrument itself that's the problem - it's that there are people gambling with money they can't lose.
But of course, the same instrument can be abused by gamblers. But it's not the instrument itself that's the problem - it's that there are people gambling with money they can't lose.
Market-makers are sufficient to allow one party to trade the risk away.
I agree gamblers are also a problem, although I'm not sure it's really a distinct group from speculators. But if you look at the amount of resources spent to in effect lower insurance premiums, I think you'll find it's much larger. So yes, the lowered insurance premiums are good, but the costs are so high that on net it's negative for society.
I agree gamblers are also a problem, although I'm not sure it's really a distinct group from speculators. But if you look at the amount of resources spent to in effect lower insurance premiums, I think you'll find it's much larger. So yes, the lowered insurance premiums are good, but the costs are so high that on net it's negative for society.
> 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...
Even farmers hedging bad weather isn't what it used to be:
http://nategabriel.com/egblog/wp-content/uploads/2019/01/6-2...
I agree
>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.
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.
It's the secondary market. Companies get nothing on a bet they win or lose. People betting on a soccer game have zero effect on the future of soccer.
Secondary markets can definitely influence the price of the underlying asset, especially if they're more liquid.
Derivatives? Do Barcelona change their tactics because I keep winning big on the first goal scorer?
This is a socially useless activity. Stop trying to force it.
This is a socially useless activity. Stop trying to force it.
> 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.
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.
Robinhood is such an ironic name for the app.
The elephant in the room is, the people who Robinhood is supposedly letting buy into a vast money fountain that is the stock market already had a way to get in.
The fees that other brokorages were charging shouldn't have mattered if these people were investing in the only responsible way for someone who doesn't know what they're doing... and that's buying into an index fund and leaving it for several years.
By it's very nature, the people who end up in Robinhood, who wouldn't be able to get "into" other brokrages, are the kinds of people who get eaten up whole by the rest of the market.
It's the rich stealing even more from the poor, while giving them the illusion they're all sitting at the same table eating the same meal. -
If Robinhood was really about doing what it claims to do, the app would have 3 tickers, QQQ, SPY, and DIA.
And when you put money in, it'd warn you that you should be ready to leave that money there for at least 5 years.
It sure as hell wouldn't have options trading.
The elephant in the room is, the people who Robinhood is supposedly letting buy into a vast money fountain that is the stock market already had a way to get in.
The fees that other brokorages were charging shouldn't have mattered if these people were investing in the only responsible way for someone who doesn't know what they're doing... and that's buying into an index fund and leaving it for several years.
By it's very nature, the people who end up in Robinhood, who wouldn't be able to get "into" other brokrages, are the kinds of people who get eaten up whole by the rest of the market.
It's the rich stealing even more from the poor, while giving them the illusion they're all sitting at the same table eating the same meal. -
If Robinhood was really about doing what it claims to do, the app would have 3 tickers, QQQ, SPY, and DIA.
And when you put money in, it'd warn you that you should be ready to leave that money there for at least 5 years.
It sure as hell wouldn't have options trading.
>If Robinhood was really about doing what it claims to do, the app would have 3 tickers, QQQ, SPY, and DIA.
Is that what robinhood is supposed to be? A conservative retirement savings portfolio? Sure, the app store tagline says "Invest. Save. Earn.", but the listing also mentions highly speculative instruments like cryptocurrency and derivatives. It also promises access to "real-time market data" and "relevant news articles" which is only needed when you're taking on an active management style. Clearly the app isn't designed as something you chuck money into now, and withdraw a few decades later.
>By it's very nature, the people who end up in Robinhood, who wouldn't be able to get "into" other brokrages
The reason why they wouldn't "get into" the other brokerages is because they transact in such small amounts that they'll lose most of their capital on trading fees. I don't see anything wrong with letting people make small trades that they wouldn't have otherwise been able to make.
>And when you put money in, it'd warn you that you should be ready to leave that money there for at least 5 years.
How about we let the users take personal responsibility? I like Matt Levine's idea of "Certificate of Dumb Investment". Disclose the risks to them, and let them do whatever they want. https://www.bloomberg.com/opinion/articles/2018-09-24/earnin...
Is that what robinhood is supposed to be? A conservative retirement savings portfolio? Sure, the app store tagline says "Invest. Save. Earn.", but the listing also mentions highly speculative instruments like cryptocurrency and derivatives. It also promises access to "real-time market data" and "relevant news articles" which is only needed when you're taking on an active management style. Clearly the app isn't designed as something you chuck money into now, and withdraw a few decades later.
>By it's very nature, the people who end up in Robinhood, who wouldn't be able to get "into" other brokrages
The reason why they wouldn't "get into" the other brokerages is because they transact in such small amounts that they'll lose most of their capital on trading fees. I don't see anything wrong with letting people make small trades that they wouldn't have otherwise been able to make.
>And when you put money in, it'd warn you that you should be ready to leave that money there for at least 5 years.
How about we let the users take personal responsibility? I like Matt Levine's idea of "Certificate of Dumb Investment". Disclose the risks to them, and let them do whatever they want. https://www.bloomberg.com/opinion/articles/2018-09-24/earnin...
>Is that what robinhood is supposed to be?
Their idea is that they give everyone access to the financial markets, and that allows them access to wealth. My point is their name is playing on... Robin Hood who "took from the rich and gave to the needy".
But in reality it's just become another way for the rich to milk people who don't have that much money to lose anyways.
It completes the stated part of the mission, but completely forsakes the implied part of it.
> The reason why they wouldn't "get into" the other brokerages is because they transact in such small amounts that they'll lose most of their capital on trading fees. I don't see anything wrong with letting people make small trades that they wouldn't have otherwise been able to make.
My point is, they won't lose most of their capital unless they're day trading, or at least trading very aggressively. And that's wholly at odds with actually making money if you don't know what you're doing. If their goal was to create a gambling app, we already have Draft Kings...
I mean, take their options trading for example. First off, the mobile app has a guided view for people who don't really get options to trade options. Ignoring the... strangeness there. It will actively recommend options that are just pure fucking insanity. So far out of the money, with such insane expiry dates, that your odds are literally worse than the lottery. And to top it off, half of them don't even have volume! So even if you do somehow start to approach any semblance of profit, you can't sell!
They're so far OTM and with such low volume that they don't even make sense as "YOLO"s, they are literally recommending losing money for no reason. And it'll characterize them as "short term, high risk" when there are OTM options that are short term high risk, for marginally more money, with infinitely higher chances of profit! Why would you take someone who literally needs to be explained that puts are bearish, and show them this as the first option?!
These people are told options are risky, see these incredibly stupid positions, get no mention of the Greeks, no mention of volume (it won't even show any of this unless you drill down into another view!), and take Robinhood's suggestion "I came here for risky, it says this is risky, must be what I'm looking for".
> How about we let the users take personal responsibility?
How on earth is that at odds with warning users they should be ready to leave their money in the stock market for long periods of time, are you daft?
Their idea is that they give everyone access to the financial markets, and that allows them access to wealth. My point is their name is playing on... Robin Hood who "took from the rich and gave to the needy".
But in reality it's just become another way for the rich to milk people who don't have that much money to lose anyways.
It completes the stated part of the mission, but completely forsakes the implied part of it.
> The reason why they wouldn't "get into" the other brokerages is because they transact in such small amounts that they'll lose most of their capital on trading fees. I don't see anything wrong with letting people make small trades that they wouldn't have otherwise been able to make.
My point is, they won't lose most of their capital unless they're day trading, or at least trading very aggressively. And that's wholly at odds with actually making money if you don't know what you're doing. If their goal was to create a gambling app, we already have Draft Kings...
I mean, take their options trading for example. First off, the mobile app has a guided view for people who don't really get options to trade options. Ignoring the... strangeness there. It will actively recommend options that are just pure fucking insanity. So far out of the money, with such insane expiry dates, that your odds are literally worse than the lottery. And to top it off, half of them don't even have volume! So even if you do somehow start to approach any semblance of profit, you can't sell!
They're so far OTM and with such low volume that they don't even make sense as "YOLO"s, they are literally recommending losing money for no reason. And it'll characterize them as "short term, high risk" when there are OTM options that are short term high risk, for marginally more money, with infinitely higher chances of profit! Why would you take someone who literally needs to be explained that puts are bearish, and show them this as the first option?!
These people are told options are risky, see these incredibly stupid positions, get no mention of the Greeks, no mention of volume (it won't even show any of this unless you drill down into another view!), and take Robinhood's suggestion "I came here for risky, it says this is risky, must be what I'm looking for".
> How about we let the users take personal responsibility?
How on earth is that at odds with warning users they should be ready to leave their money in the stock market for long periods of time, are you daft?
I suspect part of why this comment is apparently ruffling some feathers is this idea that there's just this magical market that all the old money is guarding people away from with PDT restrictions and "accredited investor" status.
I don't buy it. I believe the reason we still have accredited investors is because Uncle Sam wants to make sure you at least have 1 million dollars of assets to have liquidated if you go bust.
I have never seen a truly lucrative market that consistently beats just sticking your money in an index fund that's locked away behind being Rule 501 qualified unless you literally just have millions of dollars sitting around and don't mind throwing away half a million on some high risk venture knowing it can blow up at any time.
Also Robinhood is disgusting, I explain more in my other comment, but people are now coming out and saying this kid didn't even owe the money that he was shown, there's a known issue with Robinhood's handling of multi-leg options that might have bit him:
https://www.reddit.com/r/wallstreetbets/comments/h97l9z/how_...
This kind of bullshit is why Robinhood is such a ridiculous proposition. It's giving someone access to a flaming ring of death, then giving them a rusted out bicycle to ride through it, and acting like you did them some great favor by letting them access the flaming ring of death because some other people in full gear on motorcycles do it all the time.
Robinhood as a broker has serious flaws (I wonder if they patched the bug that let literally anyone get infinite amounts of leverage through their app?), constantly breaking during periods of high volatility, misrepresenting risk, having terrible fills for options and stocks, not showing extremely important information on options up front just to make it "easier" for people. You add all this up with who it's targeting and it's sickening.
This won't be the last time this happens.
I don't buy it. I believe the reason we still have accredited investors is because Uncle Sam wants to make sure you at least have 1 million dollars of assets to have liquidated if you go bust.
I have never seen a truly lucrative market that consistently beats just sticking your money in an index fund that's locked away behind being Rule 501 qualified unless you literally just have millions of dollars sitting around and don't mind throwing away half a million on some high risk venture knowing it can blow up at any time.
Also Robinhood is disgusting, I explain more in my other comment, but people are now coming out and saying this kid didn't even owe the money that he was shown, there's a known issue with Robinhood's handling of multi-leg options that might have bit him:
https://www.reddit.com/r/wallstreetbets/comments/h97l9z/how_...
This kind of bullshit is why Robinhood is such a ridiculous proposition. It's giving someone access to a flaming ring of death, then giving them a rusted out bicycle to ride through it, and acting like you did them some great favor by letting them access the flaming ring of death because some other people in full gear on motorcycles do it all the time.
Robinhood as a broker has serious flaws (I wonder if they patched the bug that let literally anyone get infinite amounts of leverage through their app?), constantly breaking during periods of high volatility, misrepresenting risk, having terrible fills for options and stocks, not showing extremely important information on options up front just to make it "easier" for people. You add all this up with who it's targeting and it's sickening.
This won't be the last time this happens.
[deleted]
The market doesn't care about your age or identity.
Young folks: remember, you can always declare bk after a bad options investment. Unlike student loans.
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 accurate[.]"
That explanation would make more sense; I don't see how Robinhood could allow inexperienced traders such amounts of unsecured margin and survive as a business.
"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 accurate[.]"
That explanation would make more sense; I don't see how Robinhood could allow inexperienced traders such amounts of unsecured margin and survive as a business.
It's not a display error. It's an options trade with different leg. One side was exercised before the other and will show the large discrepancy until you or the broker executes the other side.
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 business isn't complicated, you had men and women with high school level educations running these positions for decades without these problems...one touch from the "geniuses", kaboom...again, very little about what Robinhood do makes sense, it is baffling that they are even regulated to handle money.)
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 business isn't complicated, you had men and women with high school level educations running these positions for decades without these problems...one touch from the "geniuses", kaboom...again, very little about what Robinhood do makes sense, it is baffling that they are even regulated to handle money.)
Because it's the real number. Every broker does this and they can't misrepresent the market or your account.
The issue is that some people don't understand how option trades work, in this case a credit spread with 2 legs of a trade. One side was exercised and would have been offset by the other side when the broker got around to it, but it's not incorrect data.
It's up to the trader to understand their trades.
The issue is that some people don't understand how option trades work, in this case a credit spread with 2 legs of a trade. One side was exercised and would have been offset by the other side when the broker got around to it, but it's not incorrect data.
It's up to the trader to understand their trades.
This glitch showing a massively incorrect balance sounds absurd. Is there a logical explanation? Is it a bug?
No, it's just how it works. Like if you front for food for a big party, you might have a -1000 charge on your CC, but then you get paid back. The - 1000 is "real", just temporary.
Specifically, in a spread he might have lost 770k on his short but up 760k on his long, so his actual loss at the end was just 10k.
Specifically, in a spread he might have lost 770k on his short but up 760k on his long, so his actual loss at the end was just 10k.
Also, many people will agree that having a low income (and even being poor) may not be awesome, but sure beats being dead.
Disagree, life already sucks with money. Not worth living without it.
Why should a bad options investment be better protected than studying?
Because you need to qualify for margin and the person who lent you the money agreed to lend it to you knowing that you could BK it. With student loans, the student usually doesn't have an income or assets so there needs to be more incentives to convince lenders to lend money.
I don't see how that reasoning applies to one, but not the other circumstance.
Student loans are cheap and available because they can't be defaulted on. If lenders don't get those guarantees, they won't want to lend at the lower rates or approve people as easily.
The federal government guarantees almost all student loans. This is why they are cheap. Default exists regardless of whether the debt can be easily discharged in bankruptcy.
The answer is right there. Bankruptcy is legally a recourse of the credit extended by Robinhood, and it is legally not one of student loans. That may or may not be morally correct or good policy, but it's certainly the current state of the world.
I agree with you, it's just that the one that I'd question would be the obverse. That is, student loans should either be dischargeable by bankruptcy or just not extended. If a lender can't make money in that asset class, they should fold. If that means it leaves the government the lender of last resort, that's how things should be. If that means the asset class implodes and it can't prop up a mispriced commodity, then so be it.
Ironically, I get the sense that the implosion is probably going to come less from it being a previously bloated, overpriced commodity than for now being a perceivably fraudulent one -- IE, students are (justifiably) heated about having to pay the equivalent price of a home to take a glorified webinar from "Zoom University" -- and who can blame them, really?
Now, back on topic -- what happened here was tragic. At some point, Robinhood is going to get actually sued by someone who expects peer level performance (IE TD/tastyworks/etc). It'll be interesting to see what happens there. And, it'll be interesting to see if they are sued (successfully) here. But, nothing is going to bring this young person's life back. How utterly harrowing. We hear so often about deaths of despair as a coded reference to opiate deaths. I know that suicide is a really major risk for startup founders when things go sideways (as well as gamblers), so seeing a new version of that makes me (despite the desensitization of the present moment) experience a new, unique kind of sadness. I hope this poor young man's soul rests in peace.
Ironically, I get the sense that the implosion is probably going to come less from it being a previously bloated, overpriced commodity than for now being a perceivably fraudulent one -- IE, students are (justifiably) heated about having to pay the equivalent price of a home to take a glorified webinar from "Zoom University" -- and who can blame them, really?
Now, back on topic -- what happened here was tragic. At some point, Robinhood is going to get actually sued by someone who expects peer level performance (IE TD/tastyworks/etc). It'll be interesting to see what happens there. And, it'll be interesting to see if they are sued (successfully) here. But, nothing is going to bring this young person's life back. How utterly harrowing. We hear so often about deaths of despair as a coded reference to opiate deaths. I know that suicide is a really major risk for startup founders when things go sideways (as well as gamblers), so seeing a new version of that makes me (despite the desensitization of the present moment) experience a new, unique kind of sadness. I hope this poor young man's soul rests in peace.
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.
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.
Since student loans come right at the start of everyone's adult life, it would be very common to strategically declare bankruptcy upon graduation, writing off good credit in your mid 20s in exchange for free education.
That's my understanding of why student loans have to stick with you.
That's my understanding of why student loans have to stick with you.
Because otherwise nobody would offer student loans.
They would certainly be a lot more careful in who they lend to. Which would go back to divisions between college-worthy and not that many people don't like.
I think I’m going to call my congresspeople with the same question.
Apocryphon(1)
Because lobbying!
https://www.google.com/amp/s/www.politico.com/amp/story/2019...
https://www.google.com/amp/s/www.politico.com/amp/story/2019...
Thanks for posting that.
The idea that DeVos, whose family owns a school lending company, is in the administration is not just a conflict of interest, but an indictment of our entire political system.
The idea that DeVos, whose family owns a school lending company, is in the administration is not just a conflict of interest, but an indictment of our entire political system.
The backing ethical stance is that EVERYONE should be protected, from everything.
But there's a practical problem applying this to student loans -- nobody who needs student loans will come out of college with meaningful assets. No house, maybe no car, no income. If you could discharge student loans in bankruptcy... there's absolutely no reason to not do it immediately upon graduation. Everyone would do declare BK and clear their debts, for good reason.
So nobody would ever give a student loan. Also for good reason.
So BK doesn't apply to student loans. Obviously there are other fixes here (government paid tuition, income based repayment, online classes, whatever), but the naive fix ("allow students to discharge loans") would not get us to a better-functioning outcome.
(unless your position is that burning the system down is a better outcome than status quo, which is a position, but it's then dishonest to argue that discharging loans is a "quick fix")
But there's a practical problem applying this to student loans -- nobody who needs student loans will come out of college with meaningful assets. No house, maybe no car, no income. If you could discharge student loans in bankruptcy... there's absolutely no reason to not do it immediately upon graduation. Everyone would do declare BK and clear their debts, for good reason.
So nobody would ever give a student loan. Also for good reason.
So BK doesn't apply to student loans. Obviously there are other fixes here (government paid tuition, income based repayment, online classes, whatever), but the naive fix ("allow students to discharge loans") would not get us to a better-functioning outcome.
(unless your position is that burning the system down is a better outcome than status quo, which is a position, but it's then dishonest to argue that discharging loans is a "quick fix")
This is good advice. And if you're twenty you can decalre BK do other things like walk the PCT CDT and AT then study in a library. And then bang! you're 27 and all of this is behind you. Your fit, healthy and educated and not going to make the same mistake twice.
I declare burger king!!
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monksy(1)
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?
They had no income; nothing to garnish. They'd enter bankrupcy and discharge the debt. Their credit would suck for 7 years and they'd lose assets that can be taken in bankrupcy (if they had any).
Hell if a kid owed me 700k, I would seriously consider putting them through college just to increase the chances of ever seeing that money again.
As they say: you owe the bank $100, it's your problem. If you owe the bank $100mil, it's the bank's problem.
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.
I can imagine the reason could be the insufferable feeling of guilt and shame, especially if the poor trader e.g. lent someone else's money and now would leave them broke.
Being able to trade with no experience and oversight is one of those things that seems like it should be illegal. I can't think of any way you can go so far in debt more quickly. Even if I tried to buy a bunch of cars or houses I can't afford I would just get rejected.
> Even if I tried to buy a bunch of cars or houses I can't afford I would just get rejected.
Try one of the auto houses or any of the sketchy mortgage brokers. They will lend to you.
Try one of the auto houses or any of the sketchy mortgage brokers. They will lend to you.
And when he doesn't pay back?
They charge such absurd interest that it doesn't matter as they can just repo it.
That would likely take much longer to default on a loan or loans and owe 700k worth in deficiency than it took this unfortunate kid to lose the same amount even if you were trying, and arguably much harder to find those sketchy mortgage brokers and auto houses than downloading an app and making a few bad trades. A loan on a car or house isn't the same as owing 700k to Robinhood, there's nothing to repossess.
How on earth wasn't he rejected going -700K?
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.