Good piece on r/WallStreetBets

[Liberty]

From RH's point of view, traders are counterparties, so if they blow up on leveraged deep out-of-the-money impossibly volatile options, they could be left holding the bag.

 

Seems to me like the solution is to increase margin requirements, not stop trading. I think they'll get a lot of blowback on this and it wasn't the right approach, but I also don't know what talks they've been having with regulators, so we can only guess what is going on behind the scenes.

[bizaro86]

From RH's point of view, traders are counterparties, so if they blow up on leveraged deep out-of-the-money impossibly volatile options, they could be left holding the bag.

 

Seems to me like the solution is to increase margin requirements, not stop trading. I think they'll get a lot of blowback on this and it wasn't the right approach, but I also don't know what talks they've been having with regulators, so we can only guess what is going on behind the scenes.

 

I agree it must be a regulator enforced ban. You could easily not lend margin on long GME options and only allow covered short options. That would make the risk to the brokerage zero. And they would still keep making money from the current frenetic trading environment.

[JRM]

The irony of all of this is that most of these evil hedge funds are likely sponsored by public and private pension programs.  The WSB revolutionaries are just robbing from themselves and their parents.

[clutch]

I'd like to see the SEC investigate Discord.

 

To find what? Rocket ship emoji’s? Bloomberg terminals have a built in chat function, why is that?

 

I think he's talking about Discording banning WSB.

 

Yeah.

 

"...hate speech, glorifying violence, and spreading misinformation."

 

LOL

 

I soon expect some of my mundane emails getting bounced from servers due to the same reason.  ::)

[winjitsu]

The irony of all of this is that most of these evil hedge funds are likely sponsored by public and private pension programs.  The WSB revolutionaries are just robbing from themselves and their parents.

 

Nah. This is a generational thing. Boomers made ZIRP asset bubbles while generating a massive debt-fuel deficit to shore up their cushy pensions and 401ks. Considering the average Robinhood user is a millennial with an account size of $6,000, this really is sticking it to the man.

[JRM]

The irony of all of this is that most of these evil hedge funds are likely sponsored by public and private pension programs.  The WSB revolutionaries are just robbing from themselves and their parents.

 

Nah. This is a generational thing. Boomers made ZIRP asset bubbles while generating a massive debt-fuel deficit to shore up their cushy pensions and 401ks. Considering the average Robinhood user is a millennial with an account size of $6,000, this really is sticking it to the man.

 

I do love watching hedge funds explode.  One of the lowest callings in life, imo.

[SouthernYankee]

"@Sanjeev: if this crosses no-politics line, please delete and let me know."

 

-If "this crosses no-politics line", then at least we know who the fascist really is.

 

In my opinion, not allowing the BUYs is the same as censorship of news items by Big Tech, and each time its all favorable in one direction.

 

Shameful.

 

Too bad Buffett isn't brave enough to speak out against it.

[Read the Footnotes]

 

Too bad Buffett isn't brave enough to speak out against it.

Buffett has spoken out about it many times. He has said that no one should be allowed to buy options unless they are legitimately hedging something. Though he has used options, I believe they have primarily been warrants in the early days, or over the counter options in later days with Berkshire.

 

His negative comments have been restricted to exchange traded derivatives (primarily options), which is of course what we are discussing here.

 

From his 2002 letter:

 

“In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”

 

Wall Street Bets: "Hold my beer, I'm going to try to take down this market maker. What could possibly go wrong?"

 

It's interesting to note that the loses to date are reported to be larger than the loses that LTCM suffered in 1998. At that time, many people feared that if LTCM had to liquidate that it would bring down the entire system. They did liquidate orderly and didn't bring down the system, but it is interesting, none the less.

 

Also interesting that the WSB attitude is to try to kick the crap out of their counter parties by rigging the game and then they are surprised that the counter party might not want to make a market any more. Both sides have the option not to play, but neither side can be forced to play.

 

Like Buffett says, you are never forced to swing and can keep the bat on your shoulder all day.

 

Sure, HF's and Banks suck in many ways, but you have the option to at try to not play their games.

[Santayana]

His aversion to options didn't stop him from writing index puts back in 2008 though.    Who would be on the other side of that trade if no one was allowed to buy them?

[Read the Footnotes]

His aversion to options didn't stop him from writing index puts back in 2008 though.    Who would be on the other side of that trade if no one was allowed to buy them?

Again as I said, his comments were limited to exchange traded derivatives, and he has engaged in over the counter transactions. No one is being prohibited from over the counter transactions if they can find a counter party.

[fareastwarriors]

 

 

 

Like Buffett says, you are never forced to swing and can keep the bat on your shoulder all day.

 

Sure, HF's and Banks suck in many ways, but you have the option to at try to not play their games.

 

Ok, I'm not using options or margin but yet I can't buy some stocks with cash?

That is what bothers me personally.

[bizaro86]

 

Also interesting that the WSB attitude is to try to kick the crap out of their counter parties by rigging the game and then they are surprised that the counter party might not want to make a market any more. Both sides have the option not to play, but neither side can be forced to play.

 

Like Buffett says, you are never forced to swing and can keep the bat on your shoulder all day.

 

Sure, HF's and Banks suck in many ways, but you have the option to at try to not play their games.

 

I dont believe anyone thinks the market makers should be forced to keep trading. I certainly don't. If they had pulled out of writing new GME calls a long time ago this never would have gotten so out of hand, because regular market participants would have charged much more given the risk. Those MM are sophisticated institutions and can own their decisions.

 

I think the complaints are mostly about brokers restricting access. The stock and options aren't halted, and with current margin rules there is no risk to the brokers.

[SouthernYankee]

"Too bad Buffett isn't brave enough to speak out against it. "

 

-My comment was about speaking out against the companies NOT ALLOWING BUYS.

[Read the Footnotes]

 

 

 

Like Buffett says, you are never forced to swing and can keep the bat on your shoulder all day.

 

Sure, HF's and Banks suck in many ways, but you have the option to at try to not play their games.

 

Ok, I'm not using options or margin but yet I can't buy some stocks with cash?

That's what what bothers me personally.

THAT is a way better complaint in my opinion.

 

The attention that this is calling to the fact that there has been so little effort to assure suitability is potentially a problem for Robinhood and any other broker that is allowing 18 years with no source of income who don't can't define an option to engage in option trading. I'm guessing they are not excited about the potential this has to stir regulatory attention.

[bizaro86]

 

 

 

Like Buffett says, you are never forced to swing and can keep the bat on your shoulder all day.

 

Sure, HF's and Banks suck in many ways, but you have the option to at try to not play their games.

 

Ok, I'm not using options or margin but yet I can't buy some stocks with cash?

That's what what bothers me personally.

THAT is a way better complaint in my opinion.

 

The attention that this is calling to the fact that there has been so little effort to assure suitability is potentially a problem for Robinhood and any other broker that is allowing 18 years with no source of income who don't can't define an option to engage in option trading. I'm guessing they are not excited about the potential this has to stir regulatory attention.

 

Yeah, brokers shouldn't be allowing people to trade things that are dramatically unsuitable for them. But they should deal with that at the KYC stage, not by eliminating trading on specific securities.

 

I have many years of experience successfully trading options. I'd like to write long dated bear call spreads on GME. Interactive Brokers has stopped letting me. I would suggest that isn't serving any actual purpose.

[backtothebeach]

I have many years of experience successfully trading options. I'd like to write long dated bear call spreads on GME. Interactive Brokers has stopped letting me. I would suggest that isn't serving any actual purpose.

 

Have you tried contacting IB via chat about this?

I have a diagonal spread where the plan is to roll the short option forward each week as long as the premiums are so crazy. Luckily (?) yesterday I already rolled the 01/29 expiry to 02/05. If they don't sort it out until Monday/Tuesday I'll try to request that they enable my account to trade these options. Maybe a futile attempt, but otherwise they would force me to close out the trade altogether.

[KCLarkin]

I would suggest that isn't serving any actual purpose.

 

IBKR chairman on CNBC today:

 

https://www.cnbc.com/2021/01/28/interactive-brokers-restricted-gamestop-trading-to-protect-the-market-says-chairman-peterffy.html

 

He is very worried about a broker or clearinghouse failure. He doesn't mention which counter-party he is worried about, but RH says they are restricting long stock purchases due to CAPITAL requirements. This suggests RH is thinly capitalized. I know RH investors aren't sophisticated enough to understand this, but if I was sitting on $20M paper gains at RH, I'd be very worried about the viability of my broker.

 

Disclosure: long IBKR

 

Edit to add: When you say that IBKR should permit bear call spreads, you are saying that IBKR should accept the counter-party risk on both legs of that trade. The trade might be low-risk for you, but very high risk for IBKR.

[KCLarkin]

Robinhood draws on credit lines from banks - Bloomberg News

[constructive]

Robinhood draws on credit lines from banks - Bloomberg News

 

I'd bet that is because of massive account closings, more so than their exposure to GME. They really destroyed their relationship with their core userbase today.

[Parsad]

I am so angry about all of this. Can someone explain why if two parties want to make a trade it should not be allowed? I don't get it. I don't get the gamma squeeze thing either. Like the market makers took the risk to take the other side of the transaction by selling calls, did they not? So then they had to go buy stock to hedge but again, is that not part of the risk???

 

Bear Stearns...Lehman Bros.  It's not that two parties are making a trade.  If the parties are large enough or have enough fire power, they could take down a major financial institution...and then dominoes fall. 

 

Now when I say two parties, I'm not referring solely to the WSB crowd, but even rogue hedge funds, private equity funds or any other fund of size.  If parties are acting together, they should be filing their positions together...such as proxies, 13D's, etc. 

 

Personally, I'm pleased that hedge funds got a taste of their own medicine, especially anything involving Cohen, but the system has to have disclosure, transparency and rules to create a fair playing field.  Cheers!

[drzola]

Next up hopefully is Zargon, and then the great literally Underwater Nuclear mine Denison; as these tulips of mine sure could get Nutriened locally out my way here.

 

Bronze medal pick is the lovely Golden Band Resources.

 

Any other good pic's folks?

 

https://www.bloomberg.com/news/articles/2021-01-28/tiny-driller-skyrockets-959-after-reddit-craze-spreads-to-oil?utm_content=business&cmpid=socialflow-twitter-business&utm_medium=social&utm_source=twitter&utm_campaign=socialflow-organic

[alpha]

I would suggest that isn't serving any actual purpose.

 

IBKR chairman on CNBC today:

 

https://www.cnbc.com/2021/01/28/interactive-brokers-restricted-gamestop-trading-to-protect-the-market-says-chairman-peterffy.html

 

He is very worried about a broker or clearinghouse failure. He doesn't mention which counter-party he is worried about, but RH says they are restricting long stock purchases due to CAPITAL requirements. This suggests RH is thinly capitalized. I know RH investors aren't sophisticated enough to understand this, but if I was sitting on $20M paper gains at RH, I'd be very worried about the viability of my broker.

 

Disclosure: long IBKR

 

Edit to add: When you say that IBKR should permit bear call spreads, you are saying that IBKR should accept the counter-party risk on both legs of that trade. The trade might be low-risk for you, but very high risk for IBKR.

 

Robinhood is not a trade executor, how are their paper gains in any danger? Unless you mean the service itself goes dark preventing them from selling their shares before the bubble pops....

[bizaro86]

I would suggest that isn't serving any actual purpose.

 

IBKR chairman on CNBC today:

 

https://www.cnbc.com/2021/01/28/interactive-brokers-restricted-gamestop-trading-to-protect-the-market-says-chairman-peterffy.html

 

He is very worried about a broker or clearinghouse failure. He doesn't mention which counter-party he is worried about, but RH says they are restricting long stock purchases due to CAPITAL requirements. This suggests RH is thinly capitalized. I know RH investors aren't sophisticated enough to understand this, but if I was sitting on $20M paper gains at RH, I'd be very worried about the viability of my broker.

 

Disclosure: long IBKR

 

Edit to add: When you say that IBKR should permit bear call spreads, you are saying that IBKR should accept the counter-party risk on both legs of that trade. The trade might be low-risk for you, but very high risk for IBKR.

 

That is an angle I hadn't considered. Thanks!

 

But my understanding was that the OCC clears every options trade. So IBKR's counterparty on my options trades is always the OCC. If the OCC went down that would be a systemic risk, and I think there is a 100% chance the US government would bail them out. And IBKR reducing GME volume probably doesn't make any difference to OCC's solvency.

 

These aren't OTC derivatives with a specific counterparty like the Bear/Lehman issues.

[Parsad]

I would suggest that isn't serving any actual purpose.

 

IBKR chairman on CNBC today:

 

https://www.cnbc.com/2021/01/28/interactive-brokers-restricted-gamestop-trading-to-protect-the-market-says-chairman-peterffy.html

 

He is very worried about a broker or clearinghouse failure. He doesn't mention which counter-party he is worried about, but RH says they are restricting long stock purchases due to CAPITAL requirements. This suggests RH is thinly capitalized. I know RH investors aren't sophisticated enough to understand this, but if I was sitting on $20M paper gains at RH, I'd be very worried about the viability of my broker.

 

Disclosure: long IBKR

 

Edit to add: When you say that IBKR should permit bear call spreads, you are saying that IBKR should accept the counter-party risk on both legs of that trade. The trade might be low-risk for you, but very high risk for IBKR.

 

That is a possibility if your account value is that high.  Otherwise for most accounts, they have normal SIPC coverage and Robinhood has a $100M policy with Lloyd's.  Although with all of the trading going on, $100M might only be a fraction of the trading volume running through Robinhood right now.

 

From their site:

 

Robinhood Financial and Robinhood Securities are members of SIPC, which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash). Explanatory brochure available upon request or at www.sipc.org.

 

In addition to SIPC protection, Robinhood provides its brokerage customers with additional "excess of SIPC" coverage through certain underwriters at Lloyd’s of London, which provides an aggregate of $100 million of coverage—up to $1.5 million for cash and $10 million for securities per customer. The excess coverage would only be triggered when SIPC coverage is exhausted.

 

Cheers!

[SharperDingaan]

I would suggest that isn't serving any actual purpose.

 

IBKR chairman on CNBC today:

 

https://www.cnbc.com/2021/01/28/interactive-brokers-restricted-gamestop-trading-to-protect-the-market-says-chairman-peterffy.html

 

He is very worried about a broker or clearinghouse failure. He doesn't mention which counter-party he is worried about, but RH says they are restricting long stock purchases due to CAPITAL requirements. This suggests RH is thinly capitalized. I know RH investors aren't sophisticated enough to understand this, but if I was sitting on $20M paper gains at RH, I'd be very worried about the viability of my broker.

 

Disclosure: long IBKR

 

Edit to add: When you say that IBKR should permit bear call spreads, you are saying that IBKR should accept the counter-party risk on both legs of that trade. The trade might be low-risk for you, but very high risk for IBKR.

 

Robin Hood accounts are protected by The Securities Investor Protection Corporation, up to 500K/account; worst that happens is that it takes account holders a few months to get their money out. IBKR is just pissed that they would be assessed a portion of the restitution, and that Robin Hood would just be the first domino of many that collapse.

 

There is also the problem that if there is a significant 'plumbing' failure, the obvious systemic replacement is a blockchain based solution; that will drastically reduce the role of intermediaries (ie: brokerages). Especially when that solution already exists.

 

https://www.brokerage-review.com/investing-firm/bankrupt/what-happens-if-fidelity-vanguard-etrade-goes-bankrupt.aspx#:~:text=Besides%20bankruptcy%20laws%2C%20the%20collapse%20of%20a%20broker,accounts%20would%20be%20protected%20up%20to%20certain%20limits.

 

SD