11 ms·
Does anyone know what his position was? Probably vertical put spreads, credit or debit could’ve resulted in this situation. Short put vertical: Underlying is a
by quickthrowman 6y ago
Does anyone know what his position was? Probably vertical put spreads, credit or debit could’ve resulted in this situation.
Short put vertical: Underlying is at 392, sell 200 390P, buy 20 389P. Underlying moves to 387, counterparty exercises 20 ITM puts, now you’re long 2,000 shares at 390, you exercise your ITM 389P and sell 2,000 shares at 389 for a net $2,000 loss.
Long put vertical: Underlying at 392, buy 20 390P, sell 20 389P. Underlying moves to 387, counterparty exercises 20 ITM puts, now you’re long 2,000 shares at 389, you exercise your ITM 390P and sell 2,000 shares at 390 for a $2,000 net gain.
Either one of these would’ve shown a negative $780,000 balance when the early exercise happened, poor kid didn’t know it was recoverable.
- Aeolun 6y agoWell damn, now I understand how this would confuse someone. Remind me to never get started with options.
- PHGamer 6y agothe more i hear about options/puts and then the short counterpart i feel as if the whole game is convoluted to hide the fact that its less investing and more gambling.
- ABeeSea 6y agoUsing various combinations of option for a single trade allows the risk/reward of the position to be more finely tuned based on changes to the underlying.
- Lucasoato 6y agoWhy downvoting? It's undeniable that some people are lured in bad investments practices because they share many characteristics with gambling. I'm not complaining about morality or ethic, it's just clear that these platforms are making a lot of money from trading addicted people.
- chordalkeyboard 6y agoI didn’t downvote but I’ll share that I have a reflexive dislike of this conflation because gambling is inherently ludic whereas option trading is intended to be an activity that creates value on the market. Gambling is consumption whereas options are capital allocation.
- salawat 6y agoCapital allocation can be ludic; where do you get the idea that just because you're allocating capital, there's no thrill or enjoyment to be found? You're taking a crank on the slot machine of the economy; throw in the inherent rush of leverage, and the dopamine hit of a profitable/successful trade, and I'd say speculation is inherently ludic.
- chordalkeyboard 6y agoIts not inherently ludic because the point isn’t having fun. The point of gambling is the contest. The point of trading options is making money or hedging risk. The fact that someone can have fun doing work doesn’t make work inherently fun. Having fun is inherently fun. Speculation is work, gambling is fun, according to the nature of the activity, regardless of the existence of professional gamblers and recreational option traders.
- pertymcpert 6y agoStraw man. No one's saying that options are for investing. They're used for speculation and hedging/risk management.
- deleted 6y ago[deleted]
- nradov 6y agoUnlike stocks and bonds, options are a zero sum game (minus fees). So they're like gambling in that sense. But they are a useful tool for investors to hedge risk.
- totalZero 6y ago> Unlike stocks and bonds, options are a zero sum game If each party only makes the one trade and has no other securities in his portfolio, maybe. That's almost never the case. For example, if you're a market maker at Goldman Sachs and you sell 10k calls to a hedge fund, you want the stock to go up monotonically and gradually so that the customer profits on direction, you profit on volatility, and you can make money on the unwind trade as well. Win-win.
- deleted 6y ago[deleted]
- mam2 6y agobasically there's continuous choice of risk, going from shares, to ITM options, to OTM options.
- avlewis 6y agoEhhh options really kinda kick ass, but only when you know what you are doing and understand the max profit and loss of a trade.
- missedthecue 6y agoThis same thing actually happened to me about a year ago in my speculation trading account. Here is a screenshot of what my account looked like on Saturday evening. https://i.imgur.com/a2JmlyQ.jpg https://i.imgur.com/a2JmlyQ.jpg Of course, I have a fairly advanced understanding of options and knew it was mathematically impossible to have lost that amount, so to me it was just a humorous and quirky bug in some startup software. What I think needs to be noted is that the only way this young man would have gotten access to the level of options required to place a trade like that was to deliberately lie on his account application. Someone who was qualified to have the level of trading access he had would have immediately known he wasnt $780k in the hole. So while Robinhood wrote some bad code, there is some personal responsibility that should be assigned here. Such a sad situation.
- ahelwer 6y agoNot sure about that last part. For some color, here's the Robinhood UI for buying calls: https://twitter.com/neoliberal_dad/status/1357784835847299076 https://twitter.com/neoliberal_dad/status/135778483584729907...
- missedthecue 6y agoI'm not talking about the UI, I'm talking about the application you fill out to get access to level 2 options permissions
- ahelwer 6y agoIn what way would he have had to lie on the application? Is it something like "yes I have read these enormous pages you've thrown at me and know what I am doing"?
- nightski 6y agoNo, it's a simple form that you have to fill out at every brokerage nowadays. It asks questions about your risk tolerance, how well you handle volatility, etc...