GME / AMC please watch
Comments
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Wouldn’t that come down to the specific contract between Citidel and RH?
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The broker is responsible until settlement that is why they have to post collateral.HoustonHusky said:Hey @FremontTroll...question for you. I’m anything but an options guy.
A bunch of wildly out of the money GME call options are now in the money...let’s say as an example 1 $300 call option (100 shares) in the money with GME closing at $350. A bunch of RH investors hold it though time because they probably don’t know what to do, which means they now have to put up funds to buy the shares ($30,000).
They have, what 2 business days to fund it? Who is responsible for the $30,000 between now and then, especially assuming RH doesn’t have the funds?
Now say the next day GME crashes to $50 and RH reddit guy says FU...I’m not paying you $30,000 for 100 shares that are now worth $5,000...try and get your money. Who’s left holding the $30,000 bag on a stock that is now worth a bunch less, especially if RH is already broke.
I’m assuming the Clearinghouse (ie Citadel being the primary one), but I don’t know for sure.
But depending on the type of account you have and how much cash/margin you have brokers may take action on your behalf on Friday afternoon to avoid the possibility of the situation you outlined. You have to know the rules of your broker. It is pretty annoying when you sell a call or put that you thought expired only to find out your broker sold it 30 minutes before close.
If you get a margin call the broker may give you a few days to meet it or may sell stocks/exercise options in your account on their own. I guess if there wasn't anything to liquidate they could come after you.
In the meantime if your options exercise your account balance can look pretty strange until it is sorted out Monday morning. That is what caused that kid to commit suicide last year- he thought his Robinhood balance was -$730k but that was just because the put he sold was exercised but the stock wasn't showing up in his account yet. I assume Robinhood would have sold it first thing Monday morning and the balance would have been sorted.
Hopefully they've changed their rules since then I'm not sure.
One interesting situation that I've always wanted to take advantage of but never had the chance is that you can actually exercise your options up until Saturday (or Friday night end of extended hours depending on the broker.) So if your call was OOTM at noon on Friday but news was released after close and it became ITM you can get ahold of your broker to exercise. Sucks for whoever sold you that call. -
My question though is if the broker has no collateral (ie where RH is now), their business model doesn’t require it for their clients (ie RH again...average account size is only a couple thousand), and I’m guessing the liquidity of those options dry up because the main people still buying/selling them are all on the same platform facing the same issues.
Somebody holds the bag in the above case...who does that end up being? -
Robinhood is on the hook to the clearinghouse and the customer is on the hook to Robinhood.HoustonHusky said:My question though is if the broker has no collateral (ie where RH is now), their business model doesn’t require it for their clients (ie RH again...average account size is only a couple thousand), and I’m guessing the liquidity of those options dry up because the main people still buying/selling them are all on the same platform facing the same issues.
Somebody holds the bag in the above case...who does that end up being? -
The real risk to Robinhood is just a good old fashioned run on the bank. Everyone pulling their money out now.
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I’m not trying to be a dick...options are not my thing and only know a bit of how they work.
I’m assuming you mean on the hook to these guys since they route most of their trades?
Citadel Clearing LLC
https://www.bloomberg.com/profile/company/1314823D:US
My point is if the above is true Citadel is in bed with RH whether they like it or not.
Citadel was very lawyerly in their response...they said they didn’t tell them to shut trading down. My point is they didn’t have too...all they had to do was just show them a model if trading continued how much Robinhood would have to pony up to them for different GME price scenarios knowing Robinhood didn’t have a chance in hell of having that money, and also knowing they were completely effed if they were stuck holding the bag trying to sue thousands of small-time RH account holders to try and recover their money on something that is going back to $10/share in a month if not sooner.
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FremontTroll said:
The real risk to Robinhood is just a good old fashioned run on the bank. Everyone pulling their money out now.
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That is a strange way to frame it but the $33bn is industry wide. Robinhood may have the most number of customers by this point but in terms of amount of money traded they are minuscule.HoustonHusky said:FremontTroll said:The real risk to Robinhood is just a good old fashioned run on the bank. Everyone pulling their money out now.
But yes this was the reason they restricted GME not any nefarious pressure from hedge funds. If GME buys reached a certain % of Robinhood orders (which surely happened) they would have had to post extra collateral for every additional GME trade per the formula. And yes, if all their customers lost on the same stock at the same time they would have to cover the loss until settlement.
Watch the interview of the WeBull CEO he explained the situation they were in much more transparently.
The thing is that they are now past the crunch. I really doubt there will be any three day period with more volume and swings in GME than the last three. People are gonna get bored and move on.
Also it’s not like Robinhood is letting it’s noon customers sell naked calls or puts with unlimited risk. The most advanced options level (which honestly anyone can get to) just lets you trade various types of spreads. -
I don’t know what Citadel clearing is I assume it’s Citadel clearing their own trades there are multiple levels. Robinhood has its own clearing too. But when I am talking about the clearinghouse I mean the central clearing house.HoustonHusky said:I’m not trying to be a dick...options are not my thing and only know a bit of how they work.
I’m assuming you mean on the hook to these guys since they route most of their trades?
Citadel Clearing LLC
https://www.bloomberg.com/profile/company/1314823D:US
My point is if the above is true Citadel is in bed with RH whether they like it or not.
Citadel was very lawyerly in their response...they said they didn’t tell them to shut trading down. My point is they didn’t have too...all they had to do was just show them a model if trading continued how much Robinhood would have to pony up to them for different GME price scenarios knowing Robinhood didn’t have a chance in hell of having that money, and also knowing they were completely effed if they were stuck holding the bag trying to sue thousands of small-time RH account holders to try and recover their money on something that is going back to $10/share in a month if not sooner.
The thing to understand is that Citadel is important to Robinhood but Citadel doesn’t give two fucks about Robinhood. Citadel is easily the biggest market maker the business from Robinhood is trivial in terms of $ amount it’s probably more interesting to them in terms of information. -
Ok, I am not nodding anymore. The last page of @FremontTroll and @HoustonHusky broke my brain. My money is going back in the sock. Better pull my dick out first.
