
Robinhood 20yo trader with no income loses 700k on options, takes life - arkadiyt
https://twitter.com/BillBrewsterSCG/status/1271802132979748866
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Ghjklov
On the flip side, if this trader instead made 700k on options, he'd be
celebrated as a hero who beat the market at such a young age and Robinhood
would be an empowering role in elevating the young and disenfranchised. That
is just the reality of the market. I hope this is not setting up so that the
powers that be, and the market makers can demonize trading and then regulate
away all the new blood who wants to get in on their game.

~~~
amiga_500
People "made" 700k for him to lose it, less fees.

Because speculative trading is a zero sum game, it creates no wealth. And no,
this isn't wheat farmers hedging bad weather.

~~~
wpietri
Yeah, I think fees and externalities mean that speculation is a negative-sum
game. I used to work for financial traders, but I quit that industry because I
decided it was, however lucrative, a net societal negative.

~~~
chii
speculating is not a net societal negative - it allows one party to trade the
risk away.

But of course, the same instrument can be abused by gamblers. But it's not the
instrument itself that's the problem - it's that there are people gambling
with money they can't lose.

~~~
wpietri
Market-makers are sufficient to allow one party to trade the risk away.

I agree gamblers are also a problem, although I'm not sure it's really a
distinct group from speculators. But if you look at the amount of resources
spent to in effect lower insurance premiums, I think you'll find it's much
larger. So yes, the lowered insurance premiums are good, but the costs are so
high that on net it's negative for society.

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ehsync
This is tragic.

The consensus I've gathered is that this was a result of a stock option credit
spread's short leg being assigned combined with a misunderstanding of the
trading platform's reporting. If this is true, an analogy for the situation
would be:

The individual bet on a coin flip, wagering $10 (representing the $700k) on
heads and $9 (figurative amount representing the spread) on tails.

The outcome was tails.

The account immediately reflected the loss but not the win, displaying a -$10
balance.

When the $9 payout from the win would have settled, the account balance would
have become -$1 instead of -$10.

The individual didn't realize the $9 payout was coming, and took his life in
reaction to the -$10 balance.

~~~
lukevdp
How do you know this?

~~~
lazyload
Hard to be completely sure without RH or the family specifying, but browsing
r/WSB’s thread on the incident, looks like a lot of people have encountered
this exact same issue and had it clear up the next day

------
nine_k
Imagine: "A 20 yo runs across highway in heavy truck traffic, dies". Well,
yes. There is an obvious risk, and you either acknowledge this risk and act
accordingly, or get struck.

Fortunately, if you do a very bad investment, you can sell all your assets, go
bankrupt, and keep your life. Too bad the poor guy chose to take his life. But
this again looks like not doing enough homework.

This is very sad. I wish these things were written in large red letters on the
signup page for a trading account, and one would have to type them in first
person, like "I realize that I can lose all my possessions as a result of a
bad trade" (no copy-paste allowed) to even accept the terms of service.

[Edited: spelling]

~~~
sytelus
I think every high school student should have one day class dedicated on
following topics and so many lives would be saved:

1\. Folies of investments, how you can lose everything.

2\. Folies of marriages, divorce laws and how you can lose everything.

3\. Folies of gambling in casinos and how you can lose everything.

4\. Folies of alcohol, tobacco and other soft drugs and how you can lose
everything.

Each of these class should be given by 2-3 people who actually lose everything
in these cases.

~~~
Apocryphon
Ideally, it would be great for a country to have systems in place so that the
worst you can possibly lose is less than everything.

~~~
unishark
Technically I think there are lots of such laws. Like protecting the house you
live in.

But in the case of things like taxes and child support, you can ultimately
lose a lot more than everything.

------
doctoboggan
Does anyone know who this is and if there is a way to verify what he is saying
is true?

I don’t know much about Robin Hood but people here seem to be indicating that
it’s not possible to end up owing money like that.

The tweets also seem to advertise for two other twitter accounts that give
investing advice.

~~~
_binder
Let me just tell it is possible to make that kind of loss on Robinhood.
Weather the tweets are real IDK.

~~~
dx034
I'd be surprised if that's true. No other broker allows this simply for the
reason that Robinhood would otherwise have to pay up if their client can't
respond to a margin call.

------
Traster
This feels a bit like the tide pod challenge. It isn't necessarily RH's fault
that a group of bored teenagers have decided to spend their spare time lying
on the internet about options trading. It starts with a small group of trolls
thinking it would be funny to bullshit about something and before you know it
you've got a community that's a wonderful mix of people in on the joke and
people _actually_ burning their life savings (and more) on complex financial
instruments without even the bare understanding of their mathematical
properties.

Tide never advertised their laundry detergent as edible, but they still had to
deal with it and come out and actually advertise that you shouldn't eat tide
pods. Similarly, I think, with Robinhood I think they actually have a
responsibility to actually inform their customers the real risks associated
with what they're doing.

~~~
throwawaygh
nb other trading platforms do try to educate their consumers. rh makes it very
easy to trade options.

------
enilakla
Something seems off here. The person would have had to have significant assets
or collateral to end up negative; regardless of age and income.

It just doesn’t work like that.

~~~
meritt
You're right, but due to Robinhood's terrible UI/UX, when you hold a spread
and the short leg gets assigned, it shows your account as owing an
astronomical amount. In reality, you have an opposite leg that gets exercised
and you're only out the difference in the spread (which that risk is based on
your account balance/margin/etc).

This kid didn't lose $700k, his account just shows -$700k until Monday morning
when it will update with the other leg being exercised and he probably lost a
few grand instead. Here's a similar situation where someone thought they lost
$172k, when in reality they lost $2k. [1]. It's a combination of a shitty UI
and people not understanding option spreads.

[1]
[https://old.reddit.com/r/wallstreetbets/comments/aohvow/hi_t...](https://old.reddit.com/r/wallstreetbets/comments/aohvow/hi_this_morning_i_lost_172k_trading_options_on_my/)

~~~
RIMR
This is exactly right.

This story just got a lot more tragic... He maybe lost $10k. Maybe nothing at
all.

Hell, he might have made money, but the RH UI just showed him this abysmal
number.

Or there's more to this story. I would be interested in knowing how long the
issue had been going on, and if RH support had been contacted.

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hejja
I'm aware options are complicated, but is someone able to expand on how this
is possible?

I guess if you short calls you have unlimited downside, no?

but it was my understanding that the entire point of options was to cap
downside (don't exercise) and maintain upside

~~~
cowmoo728
He likely did a credit spread and one of the options exercised early.
Robinhood shows that you owe $x, but if you look closer you have another
option that guarantees that you'll get the stock to cover it, you just have to
email robinhood support and tell them to exercise that option too. Very sad
that he likely didn't even owe that $700k, just misunderstood the UI in his
panic.

[https://www.reddit.com/r/RobinHood/comments/9guf3n/doh_some_...](https://www.reddit.com/r/RobinHood/comments/9guf3n/doh_some_calls_on_my_call_spread_got_assigned_and/)

~~~
huac
ah the follies of American-style options...

------
abiogenesis
Wait, is it possible to "owe" money to Robinhood? I have never used them but I
was under the assumption that you can only lose the money you deposited,
because of the leverage, but you can not go negative.

The tweet seems to imply that too, but a lot of the comments here look
misinformed.

~~~
nknealk
I think that’s the default for any brokerage product.

However, when you apply for options trading, you have the option to add margin
to your account. It’s essentially just a tick box. It appears from the twitter
thread that this user unknowingly added margin to his account, traded on
margin, then had a really big margin call.

------
binarysolo
Read a bit and wasn't sure of the exact nature of the 700k loss, but if he
somehow got access to all that credit without the assets to back it it, it
would seem like people can form a pact, where person A gets credit and bets X
on a thing, person B bets the counterparty -X, have X be comically large, one
person gets the payoff while the other declares bankrupcty, and basically
"gain X/2 for enduring bankruptcy". (We can have some variation to sweeten the
pot, where the losing person gains X/2+C, winner gains X/2-C, where C= some
additional money to deal with bankruptcy hassles.)

Presumably this doesn't actually happen since it's doable, so I'd be curious
what -700k losses practically means.

~~~
gizmo686
This sounds like fraud.

Person A would have an asset worth X/2, in the form of his contract with
person B. When A declares bankruptcy, his X/2 would be used to partially pay
his debtors. This only way this scheme works is if A conceals this during the
bancrupty. For comically large X, you can expect to have a team of lawyers and
forensic accountants look through your books. If they catch on, you get
nothing except a potential fraud conviction.

~~~
binarysolo
Yeah, that makes sense - for a simple scheme like this I'm sure there's some
expectation you can't just go around abusing bankruptcy like this.

------
imnotlost
America is a business. Get rid of regulation and let people fend for
themselves.

[https://en.wikipedia.org/wiki/Bucket_shop_(stock_market)](https://en.wikipedia.org/wiki/Bucket_shop_\(stock_market\))

------
imcoconut
If the quoted $700k loss was a glitch, is robinhood in any way liable here?

~~~
MattGaiser
Most stock data firms make you agree that the information displayed may be
inaccurate. If you want guaranteed accuracy, they make you pay through the
nose.

~~~
dx034
Even for professional investors it frequently happens that you only know your
exact PnL after markets close. With all automation there are still manual
processes and software errors so manual trade reconciliation isn't that
uncommon for high trading volumes.

But professional investors also have their own bookkeeping and deeper pockets
to pay for losses.

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alpineidyll3
This is going to make it less fun for me to go to work tomorrow and sell
/r/wsb financial derivatives whose value they couldn't begin to understand.

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downerending
This is a horrible story, no doubt.

Broadly, unless you have a million dollars to lose, you have no business
putting your money in _anything_ but mutual funds. Even there, only low-
overhead index funds are a good call.

For most people, buying individual symbols is very foolish. And options, etc.,
is simply insane.

------
ohyes
This is a huge fuck-up on Robinhood's part, they should have never given him
that sort of leverage.

Any relatively new investor trading options is also a huge mistake, it is
surprising he was approved for an account where he can even use options.

------
smkellat
All I have done is looked for somewhat stable dividend payers, bought those,
and held them until various unpleasant circumstances forced me to liquidate.
The service I am using now has good guardrails, nice screeners, very
responsive customer service, and I am pretty happy with them. The first one
tried to look like it was out of Trading Places and was so confusing that I
didn’t manage to make a trade on it before dumping it.

At the least I know I don’t know everything in stocks. I know enough to ask
questions when I don’t understand. My account is still set to zero margin and
will stay there for the time being.

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vmception
I had a $200,000 bill on AWS last week. I made a support query and got it
removed.

I could have written a suicide note, but then I didn't. It actually never
crossed my mind. It was so inconsequential that I was prepared to just move my
static website off of that S3 bucket into another AWS account bucket, and
remove my credit card which prompts Amazon to just terminate the account. If
it went to actual collections I would have been ready to discharge it and deal
with the consequences of not being able to get airlines miles on a premium
credit card for a few years.

In 2020, this is considered tone deaf.

~~~
dx034
The difference is this money would've gone to AWS. They could wave it without
much of an issue. The counterparty for the option wasn't Robinhood but some
other trader. The loss (if it ever existed) has to be paid by either the
client or Robinhood. You can't just remove it. And for $700k many companies
will go to great length to recover at least some of the money.

~~~
vmception
While the similarity is that the Robinhood and Amazon losses were UI novelties
which were both promptly resolved.

And you are missing that brokers routinely settle for much lower amounts in
bad trades.

------
prithvi24
This is super unfortunate, really sorry to hear about it

Robinhood, is like any tool, and can be used in a positive or negative way.

I've been telling my friends using Robinhood to check out
[https://www.amazon.com/Random-Walk-Down-Wall-
Street/dp/03933...](https://www.amazon.com/Random-Walk-Down-Wall-
Street/dp/0393330338)

Commission free ETFs and blue chip stocks are great ways to _start_ building
wealth (especially for novice traders who are not interested in specific tax
advantages). Everyone should really read the book before trading

------
mmm_grayons
This is obviously tragic, but there's a reason options have a reputation as
risky investments and probably not a great choice for most beginning
investors. In any case, this market is incredibly risky and difficult for most
any trader to predict. Most established brokerages have tighter rules around
margin trading precisely for this reason, and I wonder how many 700k losses
robin hood will eat before implementing similar restrictions. He probably
didn't actually owe 700k in any case; I'm guessing it was just some delay or
glitch.

~~~
monksy
Schwab makes this based on levels you're allowed to do it at. Also it has
limits based on what you're cleared to cover.

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mam2
He didnt actually lose 700k it was a UI problem.

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redis_mlc
Young folks: remember, you can always declare bk after a bad options
investment. Unlike student loans.

~~~
mrpopo
Why should a bad options investment be better protected than studying?

~~~
newguy1234
Because you need to qualify for margin and the person who lent you the money
agreed to lend it to you knowing that you could BK it. With student loans, the
student usually doesn't have an income or assets so there needs to be more
incentives to convince lenders to lend money.

~~~
throwaway2048
I don't see how that reasoning applies to one, but not the other circumstance.

~~~
stevens32
Student loans are cheap and available because they can't be defaulted on. If
lenders don't get those guarantees, they won't want to lend at the lower rates
or approve people as easily.

~~~
readams
The federal government guarantees almost all student loans. This is why they
are cheap. Default exists regardless of whether the debt can be easily
discharged in bankruptcy.

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Kednicma
From stories I heard growing up, a debt like $700k USD would get somebody
killed by their bookies. But Robinhood isn't a bookie, I think, so what would
have happened to this unfortunate soul instead? Bankruptcy and garnishing?

~~~
victor9000
Hell if a kid owed me 700k, I would seriously consider putting them through
college just to increase the chances of ever seeing that money again.

~~~
wwweston
As they say: you owe the bank $100, it's your problem. If you owe the bank
$100mil, it's the bank's problem.

------
metrokoi
Being able to trade with no experience and oversight is one of those things
that seems like it should be illegal. I can't think of any way you can go so
far in debt more quickly. Even if I tried to buy a bunch of cars or houses I
can't afford I would just get rejected.

~~~
MattGaiser
> Even if I tried to buy a bunch of cars or houses I can't afford I would just
> get rejected.

Try one of the auto houses or any of the sketchy mortgage brokers. They will
lend to you.

~~~
nnoitra
And when he doesn't pay back?

~~~
MattGaiser
They charge such absurd interest that it doesn't matter as they can just repo
it.

~~~
metrokoi
That would likely take much longer to default on a loan or loans and owe 700k
worth in deficiency than it took this unfortunate kid to lose the same amount
even if you were trying, and arguably much harder to find those sketchy
mortgage brokers and auto houses than downloading an app and making a few bad
trades. A loan on a car or house isn't the same as owing 700k to Robinhood,
there's nothing to repossess.

