4 ms·

I owe Etrade $106k, ouch

14 points by chad_strategic 11y ago

chad_strategic 11y ago
I thought this was entertaining. Seeing as how many people are suffering in the world (Paris attacks, refugees, etc...) I guess this guy is suffering as well...
- jacquesm 11y ago
  It's not entertaining, it's sad.
  - chad_strategic 11y ago
    Corrected: <sarcasm> I thought this was entertaining. </sarcasm>
jacquesm 11y ago
On the stockmarket, there are bulls and bears and pigs. The bulls expect stocks to go up, the bears would like to see it go down and the pigs are getting slaughtered. The moral of the story here is to not get into stuff you do not understand.
ejcx 11y ago
Anyone have explanations on how this is possible? I'm familiar with the basics of options trading but it is still very confusing...
- alfalfasprout 11y ago
  See my explanation above on albright's comment
Albright 11y ago
As someone who doesn't really understand day trading or much about the stock market in general, could someone explain in plain English what is going on here? Why would E-trade even allow one of their customers to "go into debt" to them like this?
- alfalfasprout 11y ago
  When you "short sell" a stock, you're betting that the price is going down. Now, for you to actually profit from the downswing the transaction has to be structured in a certain way. The way this works is that you place an order with your broker to "short" a certain amount of stock. Let's say a lot of 100 shares. What they do is immediately purchase and then sell 100 shares. Let's say the price at this point is $100 a pop. Your account is thus credited $100 x 100 = $10,000. Now, a short sale entitles the broker to the equivalent number of shares to close the position (this is called "covering"). So, since in this case they purchased and sold 100 shares, you now owe them 100 shares. Let's say the price drops to $50 and you want to close. You simply buy 100 shares @ $50 and pay 100 x $50 = $5000. Remember how your account had been credited $10000? You're now left with $5000 which is your profit to keep. But... what if the price had gone up to $200? $400? In that case, you still owe them 100 shares. So you'd have to pay 100 x $200 = $20000 (leaving you with a net loss of $10k) or 100 x $400 = $40000 (leaving you with a net loss of $30k) respectively. As you can see, your downside is theoretically unlimited. This downside is particularly relevant with very small stocks. With a stock valued around $2/share, it's much easier for it to 10x in value than a $50-100/share stock. For this reason, you need to have one of the following tools available to you when shorting: 1) A great broker that will monitor and close out of huge losses 2) An opposing limit order (an order that triggers when a stock reaches a certain price, allowing you to cover) 3) A computerized trading system that will react to an adverse situation instantaneously.
- chad_strategic 11y ago
  This is a highly volatility stock, (because it's in the news right now) which a lot of retail investors are playing. News happened in the overnight that sent the shares soaring, then the algorithms sent the shares even more. Basically, the trader was betting the company was going to go bankrupt, it went the opposite direction and he lost money.
- chad_strategic 11y ago
  Also Etrade will collect interest on the margin debt.
  - 11y ago
joshmn 11y ago
GoFundMe has, in my head, turned into a beggars corner. I have a friend on Facebook who created a "legal fund" to help her friend who needs $7,500 for legal counsel for her first felony 5th-degree possession charge. I thought it was for weed or something, so I didn't think too much of it, and I said that her friend will likely get 2 years probation/stay + random drug testing, and then it will be dropped. Then I learned it wasn't weed. Heroin. I stopped feeling so bad.
- theworstshill 11y ago
  Sounds like the statists really got inside your head. Why shouldn't your friend's friend be allowed to voluntarily put anything inside her body that she wants to. >libertarian feels
keyanp 11y ago
This is interesting, I didn't know about shorting stock. I'd guess the best move is just to ride it out. Seems to me that KBIO might still go bust.
jimrandomh 11y ago
This trader lost a lot of money by shorting KaloBios Pharmaceuticals Inc, which went up on the news that Martin Shkreli had taken an ownership stake in them. You may remember Martin Shkreli having been in the news recently for a different reason: he's the hedge fund manager who bought the exclusive right to manufacture Daraprim, and raised its price from $13.50/tablet to $750/tablet, to much outrage. (Daraprim is not subject to patent, but only one manufacturer is allowed to sell it in the United States due to the combination of a small market and regulatory dysfunction at the FDA.)

I thought this was entertaining. Seeing as how many people are suffering in the world (Paris attacks, refugees, etc...) I guess this guy is suffering as well...

jacquesm 11y ago
It's not entertaining, it's sad.
- chad_strategic 11y ago
  Corrected: <sarcasm> I thought this was entertaining. </sarcasm>

jacquesm 11y ago

On the stockmarket, there are bulls and bears and pigs. The bulls expect stocks to go up, the bears would like to see it go down and the pigs are getting slaughtered. The moral of the story here is to not get into stuff you do not understand.

ejcx 11y ago

Anyone have explanations on how this is possible? I'm familiar with the basics of options trading but it is still very confusing...

alfalfasprout 11y ago
See my explanation above on albright's comment

Albright 11y ago

As someone who doesn't really understand day trading or much about the stock market in general, could someone explain in plain English what is going on here? Why would E-trade even allow one of their customers to "go into debt" to them like this?

alfalfasprout 11y ago
When you "short sell" a stock, you're betting that the price is going down. Now, for you to actually profit from the downswing the transaction has to be structured in a certain way. The way this works is that you place an order with your broker to "short" a certain amount of stock. Let's say a lot of 100 shares. What they do is immediately purchase and then sell 100 shares. Let's say the price at this point is $100 a pop. Your account is thus credited $100 x 100 = $10,000. Now, a short sale entitles the broker to the equivalent number of shares to close the position (this is called "covering"). So, since in this case they purchased and sold 100 shares, you now owe them 100 shares. Let's say the price drops to $50 and you want to close. You simply buy 100 shares @ $50 and pay 100 x $50 = $5000. Remember how your account had been credited $10000? You're now left with $5000 which is your profit to keep. But... what if the price had gone up to $200? $400? In that case, you still owe them 100 shares. So you'd have to pay 100 x $200 = $20000 (leaving you with a net loss of $10k) or 100 x $400 = $40000 (leaving you with a net loss of $30k) respectively. As you can see, your downside is theoretically unlimited. This downside is particularly relevant with very small stocks. With a stock valued around $2/share, it's much easier for it to 10x in value than a $50-100/share stock. For this reason, you need to have one of the following tools available to you when shorting: 1) A great broker that will monitor and close out of huge losses 2) An opposing limit order (an order that triggers when a stock reaches a certain price, allowing you to cover) 3) A computerized trading system that will react to an adverse situation instantaneously.
chad_strategic 11y ago
This is a highly volatility stock, (because it's in the news right now) which a lot of retail investors are playing. News happened in the overnight that sent the shares soaring, then the algorithms sent the shares even more. Basically, the trader was betting the company was going to go bankrupt, it went the opposite direction and he lost money.
chad_strategic 11y ago
Also Etrade will collect interest on the margin debt.
- 11y ago

joshmn 11y ago

GoFundMe has, in my head, turned into a beggars corner. I have a friend on Facebook who created a "legal fund" to help her friend who needs $7,500 for legal counsel for her first felony 5th-degree possession charge. I thought it was for weed or something, so I didn't think too much of it, and I said that her friend will likely get 2 years probation/stay + random drug testing, and then it will be dropped. Then I learned it wasn't weed. Heroin. I stopped feeling so bad.

theworstshill 11y ago
Sounds like the statists really got inside your head. Why shouldn't your friend's friend be allowed to voluntarily put anything inside her body that she wants to. >libertarian feels

keyanp 11y ago

This is interesting, I didn't know about shorting stock. I'd guess the best move is just to ride it out. Seems to me that KBIO might still go bust.

jimrandomh 11y ago

This trader lost a lot of money by shorting KaloBios Pharmaceuticals Inc, which went up on the news that Martin Shkreli had taken an ownership stake in them. You may remember Martin Shkreli having been in the news recently for a different reason: he's the hedge fund manager who bought the exclusive right to manufacture Daraprim, and raised its price from $13.50/tablet to $750/tablet, to much outrage. (Daraprim is not subject to patent, but only one manufacturer is allowed to sell it in the United States due to the combination of a small market and regulatory dysfunction at the FDA.)