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This is the way options market works. Each leg of an options spread can be executed on different days (since one is in response to the other). A different UI to

This is the way options market works. Each leg of an options spread can be executed on different days (since one is in response to the other). A different UI total would actually be misrepresenting the current state.

dragontamer 6y ago
I find it highly unlikely that the "other leg" of his option contract was worth zero.
- manigandham 6y ago
  Why would it be zero? Seems like he sold a credit spread. One leg can be exercised which means it gets converted into a large equity position, which will then be offset by the other leg being exercised by the broker when they get around to it. Since it's a defined risk trade, you can easily sell a large number of contracts which can result in very large stock positions when exercised. It's not an issue, the math works out, but it's something you need to understand before making the trade.
- cheald 6y ago
  Even if it was worth near zero (market price between strikes, very close to expiry), Robinhood holds collateral for the difference. ie, if I sell a $50P and buy a $45P, Robinhood holds $500 cash collateral to cover the difference. The maximum you can lose, once thing are settled, is the difference between the strikes less the premium collected. With a put spread, if I sell $50P and buy $45P, the holder of the $50P I sold can exercise at any point, and I have to buy his 100 shares at $50/ea. Let's say I got a $2.50 premium ($250 total) on that spread. At that point, my account is -$4750, +1 $45P. Perhaps the premium on the $45P is $0.50, so my account's nominal value is -$4700, +100 shares at this point. However, my $45P expires in 3 days, so maybe I want to hold on and see if the shares I had to buy at $50 will increase to $55, my $45P expires worthless, and I can then sell them for $5500 total, leaving my account +$800. Or, worst case in the other direction, the price drops below $45, and I exercise my $45P to sell them for $4500, leaving my account -$250. But until expiry or assignment, my account's nominal value is in the red.
protomyth 6y ago
The current state is what probably sent this person over the edge. The eventual state is the truth an amateur, which is what Robinhood is targeting, would understand. Only showing the current state truthfully is fine for experts, but not fine for amateurs because it obviously caused a horrid reaction.
- manigandham 6y ago
  That's the problem, an amateur who doesn't understand the trades they're making and how to read their positions should not be trading. People already sign disclaimers stating they understand how to trade and potential risks. Perhaps a more intensive testing process can help to enforce that, but they're still adults making their own decisions and I don't want to add even more regulations for market access.
slg 6y ago
Robinhood's goal is seemingly to make more complex investment vehicles available to a wider variety of people. It is therefore inappropriate for them to present this information in the exact same context that is used to communicate this information to more educated investors. It is like giving a loaded assault rifle to a trained member of the military compared to an average civilian. You can't just assume each will have the same level of knowledge. You need to provide that civilian more detailed instructions in order to make sure they don't cause accidental and unnecessary damage with it.
- manigandham 6y ago
  There's only one context, you can't misrepresent the market. You also sign a lot of paperwork stating that you understand the mechanics and risks of trading. There are several levels between buying stock and selling options that you need to ask approval for.
  - slg 6y ago
    You also have to agree to a EULA to create an account on the App Store to download Robinhood. How many people read that EULA? How many people read whatever paperwork Robinhood asks you to read? The truth is that Robinhood targets a less educated segment of the market. They have a moral responsibility to either educate those users or put protections in place so it is harder for those users to harm themselves due to the lack of an education that can be assumed standard in other investment contexts.
    - manigandham 6y ago
      This is not an EULA. It's a serious contract with real signatures and legal repercussions. You cannot claim that you didn't read it and just deny any consequences. I already stated elsewhere that there should be more verification and testing of credentials and knowledge but at some point, the adult making the decision still has the final responsibility.
      - 6y ago

dragontamer 6y ago

I find it highly unlikely that the "other leg" of his option contract was worth zero.

manigandham 6y ago
Why would it be zero? Seems like he sold a credit spread. One leg can be exercised which means it gets converted into a large equity position, which will then be offset by the other leg being exercised by the broker when they get around to it. Since it's a defined risk trade, you can easily sell a large number of contracts which can result in very large stock positions when exercised. It's not an issue, the math works out, but it's something you need to understand before making the trade.
cheald 6y ago
Even if it was worth near zero (market price between strikes, very close to expiry), Robinhood holds collateral for the difference. ie, if I sell a $50P and buy a $45P, Robinhood holds $500 cash collateral to cover the difference. The maximum you can lose, once thing are settled, is the difference between the strikes less the premium collected. With a put spread, if I sell $50P and buy $45P, the holder of the $50P I sold can exercise at any point, and I have to buy his 100 shares at $50/ea. Let's say I got a $2.50 premium ($250 total) on that spread. At that point, my account is -$4750, +1 $45P. Perhaps the premium on the $45P is $0.50, so my account's nominal value is -$4700, +100 shares at this point. However, my $45P expires in 3 days, so maybe I want to hold on and see if the shares I had to buy at $50 will increase to $55, my $45P expires worthless, and I can then sell them for $5500 total, leaving my account +$800. Or, worst case in the other direction, the price drops below $45, and I exercise my $45P to sell them for $4500, leaving my account -$250. But until expiry or assignment, my account's nominal value is in the red.

protomyth 6y ago

The current state is what probably sent this person over the edge. The eventual state is the truth an amateur, which is what Robinhood is targeting, would understand. Only showing the current state truthfully is fine for experts, but not fine for amateurs because it obviously caused a horrid reaction.

manigandham 6y ago
That's the problem, an amateur who doesn't understand the trades they're making and how to read their positions should not be trading. People already sign disclaimers stating they understand how to trade and potential risks. Perhaps a more intensive testing process can help to enforce that, but they're still adults making their own decisions and I don't want to add even more regulations for market access.

slg 6y ago

Robinhood's goal is seemingly to make more complex investment vehicles available to a wider variety of people. It is therefore inappropriate for them to present this information in the exact same context that is used to communicate this information to more educated investors. It is like giving a loaded assault rifle to a trained member of the military compared to an average civilian. You can't just assume each will have the same level of knowledge. You need to provide that civilian more detailed instructions in order to make sure they don't cause accidental and unnecessary damage with it.

manigandham 6y ago
There's only one context, you can't misrepresent the market. You also sign a lot of paperwork stating that you understand the mechanics and risks of trading. There are several levels between buying stock and selling options that you need to ask approval for.
- slg 6y ago
  You also have to agree to a EULA to create an account on the App Store to download Robinhood. How many people read that EULA? How many people read whatever paperwork Robinhood asks you to read? The truth is that Robinhood targets a less educated segment of the market. They have a moral responsibility to either educate those users or put protections in place so it is harder for those users to harm themselves due to the lack of an education that can be assumed standard in other investment contexts.
  - manigandham 6y ago
    This is not an EULA. It's a serious contract with real signatures and legal repercussions. You cannot claim that you didn't read it and just deny any consequences. I already stated elsewhere that there should be more verification and testing of credentials and knowledge but at some point, the adult making the decision still has the final responsibility.
    - 6y ago