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.
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.