WSB really shouldnt recommend shorting anything en masse, that will get the regulators involved for sure. They are only getting sympathy from most commentators because they are on the long side against the evil shorts
That is true. They shouldn't be shorting but it would be so good to send a message that it really wasn't right for the brokers to restrict trading. I can understand raising the margin requirements or cash-only trading but there shouldn't be an outright ban. The investors who have accounts with the retail brokerages that are banning the trading should really take it to Congress to have the brokers lift off the ban. They are holding a hearing.
I don't thinks this reads. From what I can tell, the Robinhood users are overwhelmingly long, and don't really have short-sold shares. How could Robinhood be stuck unable to let customers sell, when there aren't traders who have been lent the shares? (I think the idea is reasonable for other brokers but not Robinhood, to be clear.)
They are massive long calls, when they get the stocks they probably dont have enough cash. Thats the big risk imo. Ibkr restricts holding into expiration, not sure if rh does
And majority of the traders were buying call options. And as soon as the options expire, if they are ITM which they are, the traders automatically win. And for people who are selling, they are mostly selling through buying puts. Nobody is really shorting the shares. If they are, they should be the minority. So the risk should be very little to the broker nor the trader because they are all making money. It's the MM's who sold the calls and bought the shares at increasing prices and those short-sellers who are scrambling to cover that are going to default and the clearinghouses that need to make everything whole that's going to run into counter-party risk. So instead of pressuring the MM's to put in more capital, they are pressuring the retail brokers like RH and IB to put in more capital instead. MM's and the clearinghouses are the ultimate casino houses. And they are increasingly refusing to pay up when little guys are winning and are cashing the chips so they pressure the pit bosses, the discount brokers like RH and IB to close up the Blackjack tables. That's the only explanation. Otherwise RH has no reason to restrict buying even cash-buying that poses zero risk to the broker. If the trader wins, he wins if he loses, what's it to the broker?
They could've still allowed cash-only buying for shares and exercising for options. And they could also restrict to closing-positions for options only for those who don't have enough cash for exercising. IB does forced liquidation if it finds you not having enough cash in the account for exercising. RH could do the same. There is no reason to restrict trading altogether, not allowing people to invest, to manage their wealth. This is borderline unconstitutional.
Agree. But judging from what i read about rh, they just seem to be some tech geeks with not enough understanding of risk and so on..., at least in the past. (see margin fiasco generating unlim buying power or options display mess up that lead to suicide) I would not be surprised if they do not adequately assess risk on options expiry.
That's that one guy who decided to trade in options not understanding at all how option expiry works and really committed suicide for nothing. But that's not RH's problem. And that's RH's stupidity. Why punish the traders/investors by doing something that's unconstitutional for their own stupidity and incompetency?
The shorts story doesn't add up. You can't short stocks on RH. Also, most accounts are not able or authorized to sell calls.
Good points. I think the YOLO strategy was to buy OTM calls and the MM when they sell them buy stock to hedge driving the price up and up. The fear is a good number of the RH crowd don't understand assignment. Some don't grasp if you let them expire you need to have the capital to purchase the shares. Your only exit is to sell the calls or short the stock you'll be assigned before they expire but most of those accounts don't have the excess buying power to do that. I'd agree something doesn't add up.