4 ms·
> I had an absolutely disgusting thought today: Robinhood should offer parlays. Sell customers a call option on multiple assets. For example a call option to bu
by verteu 1y ago
> I had an absolutely disgusting thought today: Robinhood should offer parlays. Sell customers a call option on multiple assets. For example a call option to buy Apple at $250, NVDA at $190, GameStop at $25 and Bitcoin at $120k, but only if ALL of them are in the money. Robinhood could buy offsetting calls on each individual asset, then sell the parlay “bundle” to retail. Risk-free profit for Robinhood, and their customers would love it.
I don't see how this is risk-free - surely it involves some opinion on the correlation between the assets?
- lordnacho 1y agoIt requires the correlation if you are going to price it accurately. But with a parlay people just look at the high payout and estimate the chances wrong. By like, a lot. It's the fact that's easy to sell that makes it attractive, not that it's easy to price.
- alasarmas 1y agoI think you’re correct. There is a saying something like: in a crisis, all correlations go to 1. I believe it’s likely one of those things that’s okay most of the time and then, every once in a while, causes extreme and systemic problems. Therefore, Robinhood will probably do it because the incentives are aligned.
- muxl 1y agoIt is truly risk free. You always buy the call using the customer's money but you only give them the call if every part of the parlay is correct. Assuming they charge a commission in addition to the asset price to cover transaction processing they shouldn't lose money Edit: I don't really know how pricing these things usually works but I could see taking some risk on to price these attractively
- toast0 1y agoI get that Robinhood's business model is stealing from the poor and giving to themselves, and their customers are mostly unsophisticated, but why wouldn't the customers just buy the underlying call options if the price to buy the parlay is the sum of the underlying options?
- mrDmrTmrJ 1y agoBecause, to quote your comment, "their customers are mostly unsophisticated." And, part of the appeal of the product, is they only pay out if *all of them are in the money. Hence the "lotto-like" return profile.
- quamserena 1y agoWhile Robinhood users are unsophisticated (seriously use another brokerage…) I think that they would see through this.
- sdwr 1y agoWhy would anyone ever take that bet? It has to be leveraged, which is where the risk comes from.
- deleted 1y ago[deleted]