https://old.reddit.com/r/wallstreetbets/comments/1f57hs5/update_i_lost_my_life_savings_shorting_copper_a/
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How do these services let teenagers owe sums like $50k?
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giving a 19 year old 56k of leverage before calling the margin should be (probably is) a criminal offence. It should be argued that this was more akin to a consumer loan with no background checks. If this is true he likely has a great case that this limit was completely bonkers
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It feels criminal. Gambling sites aren't allowed to let people borrow money, these trading apps shouldn't either.
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yea i mean of course this post is likely fake but this is the scenario:
19 yo posts coll to gamble, 8.5 k$. His position gets worse and the Broker decides to fricking INCREASE HIS MARGIN??? to fricking 56 k??? like an 8 fold leverage???? Essentially having a fricking credit position of 48 k $ with no security???? Like at this point it is 100 % malice. No fricking way they can argue they have only been brokering trades until settlement...
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I can believe it solely because Robinhood seems to be really irresponsibly run. They gave a bunch of people options access that had no business trading options.
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The margin is dependent on how poor his position is doing. I don't feel like trying to decipher what the heck his positions were based off his ramblings and screenshots, but getting margin called on a ridiculously poorly performing position is Stocks 101.
Not even a margin call in this case tho. He sold a call (option saying you give a buyer the RIGHT but not the OBLIGATION to buy your assets) on an underlying $50k worth of SPY. Since it was a naked call, he didn't actually have the $50k worth of SPY and the brokerage forced him to buy it because his contract was set to expire the next day. This is better than him getting caught out in the last 24 hours of his contract and caught on the hook for $10k. Since the contract didn't actually execute (since it was OTM), he's now got $50k worth of SPY in his account that the brokerage bought for him, and he needs to sell that to pay them back.
I think he actually turned a profit on the position but it will take a bit to sell. This is a lesson for r-slur day traders that contract expiration dates matter.
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yea, and what do you call it when you owe a financial institution something? They cannot possible argue that they are merely a "brokerage" if they give 50k worth of credit to someone. His position does not matter.
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He doesn't have 50k worth of leverage. He has $50k of assets and $50k of liabilities, both of which are directly in their possession. He owns them in name alone if they got mad they would just seize the SPY and close his account.
This is just how options work, the alternative is just making it illegal to trade them.
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then wtf is he whining about on reddit? i didnt really read his post
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He's fricking stupid
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He doesn't actually owe that much. Essentially, he was trading a contract for 100 shares of a stock. It reached the time when the point that the contract executes happens the brokerage automatically buys those 100 shares to deliver them and then settles the contract at whatever the stake price is. Immediately upon buying them, your account is debited the cost of the shares, but once the contract settles you'll be credited for the proceeds which, depending on the stake will mostly even out. It's unlikely he lost more that ~$500.
All that being said, IMO you shouldn't be able to trade options if your equity is below the PDT threshold because there is a 100% chance everyone under that is gambling.
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