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> Sportsbook hold has doubled from 6% when parlays were just introduced to over 12% today. > Options were 26% of Robinhood’s revenue in 2024 with an implied gr

> Sportsbook hold has doubled from 6% when parlays were just introduced to over 12% today. > Options were 26% of Robinhood’s revenue in 2024 with an implied gross margin of over 90%. Wow. For comparison, slot machine RTP (payout ratio) usually hovers around 91-93%, meaning a "hold" of 7-9%.

dmurray 1y ago
"Gross margin" is not the same as "hold" here. Options pricing is reasonably competitive. Even a gambly thing like a Tesla zero day option has a spread of 1-2%, so someone trading it at random loses 0.5-1% per trade. And Robinhood is a brokerage, not an options market maker, so it doesn't capture all of that 0.5-1%. You'd have to read Robinhood's financials to see what they mean by gross margin. Possibly it means if a customer deposits $1,000 and trades options, the customer eventually on average loses $900 of it? Even that seems too much TBH.
- parodysbird 1y ago
  It is not a good idea for retail investors to get heavily involved in zero-sum derivatives trading against much more sophisticated algorithmic trading models.
  - nradov 1y ago
    It's not a good idea for punters to go to the casino and bet it all on black. Some percentage of the population is always going to be degenerate gamblers. We can try to reduce the harm a bit but ultimately this is just a reality we need to accept.
  - OutOfHere 1y ago
    It's just not for you to judge. Those with sophisticated models usually have a lot more capital to manage. Also, it's not a zero sum game because alignment with the underlying's price drives it. Long term share holders are the foundation that makes it not be zero sum. As a retail account grows, its approach too can become slightly sophisticated over time.
verteu 1y ago
Does anyone know why options broker fees are so high? A typical cost is ~$0.25/contract for a $1.00 SPY 0DTE, eg: https://www.interactivebrokers.com/en/pricing/commissions-options.php https://www.interactivebrokers.com/en/pricing/commissions-op... Does this reflect brokers' cost of technology (many tickers to keep track of)? Regulatory fees? Lack of competition? edit: Perhaps it's largely profit. Seems https://public.com/invest/options-trading https://public.com/invest/options-trading is trying to undercut on price.
- boringg 1y ago
  Profit and settlement risk
- quamserena 1y ago
  Regulatory fees for options is negligible. Even with $1 or $2 per contract, the quality of fill that you get matters a lot more. Robinhood has “no commission” but they have terrible fills that are a hidden cost, taking this into account the $1 or $2 charge makes more sense. You’re also paying indirectly for the UI, real time data, margin, and API, none of which are free for the brokerage. Robinhood again skimps in this regard by offering no API (except for crypto…) and a terrible UI (but at least it has confetti!).
  - verteu 1y ago
    Thanks, I found some evidence for poor fill quality here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4951825 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4951825
- OutOfHere 1y ago
  Robinhood's advertised fee per contract is 4c to buy and the same to sell.

dmurray 1y ago

"Gross margin" is not the same as "hold" here. Options pricing is reasonably competitive. Even a gambly thing like a Tesla zero day option has a spread of 1-2%, so someone trading it at random loses 0.5-1% per trade. And Robinhood is a brokerage, not an options market maker, so it doesn't capture all of that 0.5-1%. You'd have to read Robinhood's financials to see what they mean by gross margin. Possibly it means if a customer deposits $1,000 and trades options, the customer eventually on average loses $900 of it? Even that seems too much TBH.

parodysbird 1y ago
It is not a good idea for retail investors to get heavily involved in zero-sum derivatives trading against much more sophisticated algorithmic trading models.
- nradov 1y ago
  It's not a good idea for punters to go to the casino and bet it all on black. Some percentage of the population is always going to be degenerate gamblers. We can try to reduce the harm a bit but ultimately this is just a reality we need to accept.
- OutOfHere 1y ago
  It's just not for you to judge. Those with sophisticated models usually have a lot more capital to manage. Also, it's not a zero sum game because alignment with the underlying's price drives it. Long term share holders are the foundation that makes it not be zero sum. As a retail account grows, its approach too can become slightly sophisticated over time.

verteu 1y ago

Does anyone know why options broker fees are so high? A typical cost is ~$0.25/contract for a $1.00 SPY 0DTE, eg: https://www.interactivebrokers.com/en/pricing/commissions-options.php https://www.interactivebrokers.com/en/pricing/commissions-op... Does this reflect brokers' cost of technology (many tickers to keep track of)? Regulatory fees? Lack of competition? edit: Perhaps it's largely profit. Seems https://public.com/invest/options-trading https://public.com/invest/options-trading is trying to undercut on price.

boringg 1y ago
Profit and settlement risk
quamserena 1y ago
Regulatory fees for options is negligible. Even with $1 or $2 per contract, the quality of fill that you get matters a lot more. Robinhood has “no commission” but they have terrible fills that are a hidden cost, taking this into account the $1 or $2 charge makes more sense. You’re also paying indirectly for the UI, real time data, margin, and API, none of which are free for the brokerage. Robinhood again skimps in this regard by offering no API (except for crypto…) and a terrible UI (but at least it has confetti!).
- verteu 1y ago
  Thanks, I found some evidence for poor fill quality here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4951825 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4951825
OutOfHere 1y ago
Robinhood's advertised fee per contract is 4c to buy and the same to sell.