Kid played complex option chains and didn't even understand how it really worked. Sounds like Robinhood pushes this stuff like it's some kind of fun game.
No clue. I know the basics of options but I don't trade them myself yet, still learning. I learned early on that investing ain't something to fuck around with unless you know what you're doing. Especially if the money being invested is important.
Options trading is literally gambling. I stay away from it.....the HTF guys have it all sewed up. The fix is pretty much always in. Add to that the Fed buying up debt...yeah, it's basically not much more than luck if you manage to time a call or put. Extremely dangerous.
Options aren't loans. It's a premium you pay for the right to buy or sell a stock at a certain price in the future. So with a smaller amount of money you can control a much larger amount of the underlying stock. For instance, you might pay a 2% premium to reserve the right to buy 100 shares at $100 sometime over the next 30 days. After 30 days, the price of the stock is now $120. You can then exercise the option to buy the stocks at $100, and then immediately sell them for a $20/share profit, minus the cost of the 2% premium. If the stock goes down to $80 instead, you have no obligation to exercise the option and thus the option contract would "expire worthless". The maximum loss is the 2% premium.
I think what happened is that his balance was showing the cost if he were to exercise all his purchase options, without taking into account the value if they were sold, hence the massive negative balance.
I thought it was about a margin call...I read it on zerohedge a few days ago. I think they make these terms purposwfully deceptive to confuse people and take their money obviously.
Not sure I’d call it a pyramid scheme, but unless you can get a majority stake, the values are almost entirely disconnected from the fundamentals of the corporation. If you buy a few shares of Apple, you have virtually no say in the management of the company; all you have are liquidation rights (and perhaps potential, relatively small dividends). Apple isn’t going to liquidate unless shit hits the fan, in which case you will get next to nothing anyway. There is minimal or no actual value in owning extreme minority stakes in a company.
That said, I still invest, but I am dependent on others also buying into the fiction so I can make money.
Kid played complex option chains and didn't even understand how it really worked. Sounds like Robinhood pushes this stuff like it's some kind of fun game.
I like WSB but yeah, it does inadvertently foster trading like this. Not sure what his moves were. SPY calls?
No clue. I know the basics of options but I don't trade them myself yet, still learning. I learned early on that investing ain't something to fuck around with unless you know what you're doing. Especially if the money being invested is important.
Options trading is literally gambling. I stay away from it.....the HTF guys have it all sewed up. The fix is pretty much always in. Add to that the Fed buying up debt...yeah, it's basically not much more than luck if you manage to time a call or put. Extremely dangerous.
https://www.forbes.com/sites/sergeiklebnikov/2020/06/17/20-year-old-robinhood-customer-commits-suicide-after-seeing-a-730000-negative-balance/#325881285928
Some trade details in an article: https://www.forbes.com/sites/sergeiklebnikov/2020/06/17/20-year-old-robinhood-customer-commits-suicide-after-seeing-a-730000-negative-balance/#32a4a7d95928
Poor kid didn’t do his research and thought he was nearly a million in debt and not actually waiting for the stocks to pass over.
How is lending without a loan agreement being signed legal?
Options aren't loans. It's a premium you pay for the right to buy or sell a stock at a certain price in the future. So with a smaller amount of money you can control a much larger amount of the underlying stock. For instance, you might pay a 2% premium to reserve the right to buy 100 shares at $100 sometime over the next 30 days. After 30 days, the price of the stock is now $120. You can then exercise the option to buy the stocks at $100, and then immediately sell them for a $20/share profit, minus the cost of the 2% premium. If the stock goes down to $80 instead, you have no obligation to exercise the option and thus the option contract would "expire worthless". The maximum loss is the 2% premium.
I think what happened is that his balance was showing the cost if he were to exercise all his purchase options, without taking into account the value if they were sold, hence the massive negative balance.
I thought it was about a margin call...I read it on zerohedge a few days ago. I think they make these terms purposwfully deceptive to confuse people and take their money obviously.
I think this is more that he didn't understand how the stock market worked then anything else. I doubt he was actually that far in debt.
Should have been more careful regardless. He was 20, not 12.
I like the cut of your jib, Pilgrim
I bet WSB is losing their tendies over this one
Build a dividend growth portfolio, slow but more reliable. If you’re greedy and impatient this is not for you.
Stocks are a pyramid scheme. Convince me I'm wrong.
Investing in a company is a pyramid scheme? The Other crazy financial fames sure, but not straight up investing.
Not sure I’d call it a pyramid scheme, but unless you can get a majority stake, the values are almost entirely disconnected from the fundamentals of the corporation. If you buy a few shares of Apple, you have virtually no say in the management of the company; all you have are liquidation rights (and perhaps potential, relatively small dividends). Apple isn’t going to liquidate unless shit hits the fan, in which case you will get next to nothing anyway. There is minimal or no actual value in owning extreme minority stakes in a company.
That said, I still invest, but I am dependent on others also buying into the fiction so I can make money.