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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 w

by hejja 6y ago

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

formercoder 6y ago
RH doesn’t let you short naked calls, you have to hold shares as collateral, I’m not sure what happened.
- AlEinstein 6y ago
  Options spread.
james412 6y ago
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
- X-Istence 6y ago
  > 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.
  - mam2 6y ago
    Nope
    - X-Istence 6y ago
      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/ https://robinhood.com/us/en/support/articles/overview/
cowmoo728 6y ago
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_calls_on_my_call_spread_got_assigned_and/ https://www.reddit.com/r/RobinHood/comments/9guf3n/doh_some_...
- deleted 6y ago
  [deleted]
- deleted 6y ago
  [deleted]
- huac 6y ago
  ah the follies of American-style options...
whb07 6y ago
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.
- AlEinstein 6y ago
  https://news.ycombinator.com/item?id=23523517 https://news.ycombinator.com/item?id=23523517
caogecym 6y ago
Might be due to margins - i.e. buy/sell options with money borrowed from Robinhood.
- grupthink 6y ago
  You can't trade options on margins.

by hejja 6y ago

formercoder 6y ago

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

AlEinstein 6y ago
Options spread.

james412 6y ago

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

X-Istence 6y ago
> 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.
- mam2 6y ago
  Nope
  - X-Istence 6y ago
    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/ https://robinhood.com/us/en/support/articles/overview/

cowmoo728 6y ago

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_calls_on_my_call_spread_got_assigned_and/ https://www.reddit.com/r/RobinHood/comments/9guf3n/doh_some_...

deleted 6y ago
[deleted]
deleted 6y ago
[deleted]
huac 6y ago
ah the follies of American-style options...

whb07 6y ago

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.

AlEinstein 6y ago
https://news.ycombinator.com/item?id=23523517 https://news.ycombinator.com/item?id=23523517

caogecym 6y ago

Might be due to margins - i.e. buy/sell options with money borrowed from Robinhood.

grupthink 6y ago
You can't trade options on margins.