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TreeFortRichard · Oct 14, 2020

Hmmm....
Headline...Sank 14%

Reality... Went up 14% (0.70 rise over $5 to $5.78)

TreeFortRichard · Oct 14, 2020

pdaddy said: ↑

Absolutely just shit my pants for a few seconds lol turns out it was just a brokerage glitch when one of my stocks did a reverse split

Click to expand...

See now because you have 1/2 a brain you knew it had to be a glitch...so you didn't kill yourself...
https://www.forbes.com/sites/sergei...eeing-a-730000-negative-balance/#63b995d61638

forbes.com
20-Year-Old Robinhood Customer Dies By Suicide After Seeing A $730,000 Negative Balance
Sergei Klebnikov
7-8 minutes

Alexander E. Kearns.

Kearns family
With additional reporting by John Dobosz and Jeff Kauflin

The note found on his computer by his parents on June 12, 2020, asked a simple question. “How was a 20 year old with no income able to get assigned almost a million dollars worth of leverage?” The tragic message was written by Alexander E. Kearns, a 20-year-old student at the University of Nebraska, home from college and living with his parents in Naperville, Illinois. Earlier that day, Kearns took his own life.

Robinhood’s founders have since responded to Kearns’ death by suicide, pledging major changes to their platform—especially around options trading.

Like so many others, Kearns took up stock investing during the pandemic, signing up with Millennial-focused brokerage firm Robinhood, which offers commission-free trading, a fun and easy-to-use mobile app and even awards new customers free shares of stock. During the first quarter of 2020, Robinhood added a record 3 million new accounts to its platform. As the Covid-19 stock market swung wildly, Kearns had begun experimenting, trading options. His final note, filled with anger toward Robinhood, says that he had “no clue” what he was doing.

In fact, a screenshot from Kearns’ mobile phone reveals that while his account had a negative $730,165 cash balance displayed in red, it may not have represented uncollateralized indebtedness at all, but rather his temporary balance until the stocks underlying his assigned options actually settled into his account.

Silicon Valley-based Robinhood is not sharing details of Kearns’ account, citing privacy concerns: “All of us at Robinhood are deeply saddened to hear this terrible news and we reached out to share our condolences with the family over the weekend.”

It’s impossible to know all of the factors contributing to suicide, especially in young people. Still, the tragic demise of Alexander Kearns is a cautionary tale of the serious risks associated with the race to the bottom in the brokerage business. Robinhood, E-Trade, TD Ameritrade, Charles Schwab, Interactive Brokers, Fidelity and even Merrill Lynch have all embraced commission-free trading and zero-minimum balances in an effort to attract younger customers, many of whom have little understanding of the securities and markets they are dabbling in.

“I thought everything was going fine,” says Bill Brewster, Kearns’ cousin-in-law and a research analyst at Chicago-based Sullimar Capital Group. His father said he was loving the markets and really enjoying investing, Brewster told Forbes, “and then on Friday night, we got this call from his mom, and he had died.”

Kearns apparently fell into despair late Thursday night after looking at his Robinhood account, which appeared to have $16,000 in it but also showed a cash balance of negative $730,165. In his final note, seen by Forbes, Kearns insisted that he never authorized margin trading and was shocked to find his small account could rack up such an apparent loss.

“When he saw that $730,000 number as a negative, he thought that he had blown up his entire future,” says Brewster. “I mean this is a kid that when he was younger was so conscious about savings.”

Although Robinhood won’t release the details of his account, it‘s possible that Kearns was trading what’s known as a “bull put spread.” Put options give buyers the right to sell the stock at the strike price anytime until expiration, while put-sellers are on the hook to buy the underlying stock at the strike price, if assigned. This happens automatically at expiration if the price of the underlying stock closes that day at a price one penny or more below the strike price.

In Kearns’ note, he says that the puts he bought and sold “should have cancelled out,” because normally a bull put spread involves selling put options at a higher strike price, and buying puts at a lower strike price, both with the same expiration. The trade generates a net credit, which the options trader keeps if the stock price stays above the higher strike price through expiration. It’s generally considered a limited risk strategy because the simultaneous purchase and sale of put options means the maximum loss on a per-share basis is the difference between the strike prices, less the amount earned when the puts are sold initiating the trade.

There can be wrinkles, however, when the price of the underlying stock at expiration is between the two strike prices, or in the case of early assignment, which may have occurred in Kearns’ account.

Here’s an example of how a bull put spread could produce an unexpectedly large stock position in your portfolio. On June 16, Amazon (AMZN) trades at $2,615 per share. If you’re neutral to bullish on Amazon, you could sell put options that expire on July 17 with a $2,615 strike price for $28 per option. To limit your risk, the other leg of the trade is to purchase puts at a lower strike price, $2,610, for a cost of $26. That two-dollar differential (multiplied by 100) generates $200 for every contract you sell. Do three contracts and you generate $600. If Amazon closes on July 17 above $2,615, you’re in the clear and keep all of the proceeds, as both puts expire worthless. If the stock closes below $2610, you will encounter your maximum loss of $900: $5.00 (difference between strike prices) minus $2.00 (proceeds earned up front) times three contracts.

When the stock closes between the two strike prices, the put you bought at the lower strike price expires worthless, but the one you sold is in the money and legally binds you to buy the stock at the strike price. In the case of three contracts of $2,615 Amazon puts, that would be $784,500 to purchase 300 shares. Over a weekend, say, you may see a –$784,500 debit to buy the stock, but you would not see the stock among your holdings until Monday.

Kearns may not have realized that his negative cash balance displaying on his Robinhood home screen was only temporary and would be corrected once the underlying stock was credited to his account. Indeed it’s not uncommon for cash and buying power to display negative after the first half of options are processed but before the second options are exercised—even if the portfolio remains positive.

“Tragically, I don’t even think he made that big of a mistake. This is an interface issue, they have slick interfaces. Confetti popping everywhere,” says Brewster referring to the shower of colorful confetti Robinhood routinely deploys after customers make trades. “They try to gamify trading and couch it as investment.”

Says Robinhood: “We are committed to continuously improving our platform and are reviewing our options offering to determine if any changes may be appropriate.”
Click to expand...

TreeFortRichard · Oct 14, 2020

Ok...closed another $25 VXX 10/16 put...bought for $170 closed for $340....I have 1 left now. Made out like a bandit on these

TreeFortRichard · Oct 14, 2020

Annnd Look at the run on $FNGR to the bell today...Closes at $6.29 up 15% own at $2.77-2.81

TreeFortRichard · Oct 15, 2020

Great day to own $SPI for those who got my tip ....

REALLY bad day for 10/16 AMD Calls

theesotericone · Oct 15, 2020

TreeFortRichard said: ↑

REALLY bad day for 10/16 AMD Calls
Click to expand...

Which leaves the question. Do you punch the eject button and walk away with something or ride it into the ground hoping to get control back before impact?

TreeFortRichard · Oct 15, 2020

theesotericone said: ↑

Which leaves the question. Do you punch the eject button and walk away with something or ride it into the ground hoping to get control back before impact?
Click to expand...

Well I own the 10/16 $80's at $410..SO as long as it's over $84 I'm good...But It was at $88 just before the stupid acquisition...I was counting the $$$...So I'll probably ride it...I think it might flirt over and under $85...But if it hits 86/87 today I'm closing 1/2

chetterthecat · Oct 15, 2020

I missed you guys

chetterthecat · Oct 15, 2020

What you buying today? I added to AMZN and CRWD

kairo · Oct 15, 2020

I've been buying little chunks of NOK at market price for the past few weeks. They've got some 5g technology they're working on that I'm hoping will give it a decent pop in a year. At least I really hope so, cause I've got close to 2k shares of the damn stuff now.

Nautilus and Peloton have both done well for me. I got into PTON at $83 and NLS at about $11

indoomitable · Oct 15, 2020

Mbernal55 said: ↑

What you buying today? I added to AMZN and CRWD
Click to expand...

Tissues to clean up my tears from not closing out more option contracts on Monday

theesotericone · Oct 15, 2020

indoomitable said: ↑

Tissues to clean up my tears from not closing out more option contracts on Monday
Click to expand...

I closed the wrong ones. I sold ZM and kept CRWD, AAPL and TSLA. I'm a dumb ass. lol

koditten · Oct 15, 2020

Mbernal55 said: ↑

I missed you guys
Click to expand...

Same, same.

TreeFortRichard · Oct 15, 2020

Ok...closed my final VXX put at $270...$100 profit...
Now trying for the $10 20 NOV 2020 KODK Calls @$1.55...

TreeFortRichard · Oct 15, 2020

theesotericone said: ↑

I closed the wrong ones. I sold ZM and kept CRWD, AAPL and TSLA. I'm a dumb ass. lol
Click to expand...

Expiring tomorrow? If not I think you're safe with crowd...

Pick up a couple of the $10 KODK if you'd like to take a ride next week...I'm throwing a few bucks down the hall and seeing what sticks.

TreeFortRichard · Oct 15, 2020

Sold my MRNA today at $76..Bought at $66

TireFire · Oct 15, 2020

TreeFortRichard said: ↑

See now because you have 1/2 a brain you knew it had to be a glitch...so you didn't kill yourself...
https://www.forbes.com/sites/sergei...eeing-a-730000-negative-balance/#63b995d61638
Click to expand...

That’s messed up man

theesotericone · Oct 15, 2020

TreeFortRichard said: ↑

Expiring tomorrow? If not I think you're safe with crowd...

Pick up a couple of the $10 KODK if you'd like to take a ride next week...I'm throwing a few bucks down the hall and seeing what sticks.
Click to expand...

Yep. Tomorrow expiry. I should have dumped Monday but greed. lol

TreeFortRichard · Oct 15, 2020

hx989 said: ↑

That’s messed up man
Click to expand...

Yup...very crazy story...highlights the importance of understanding what the numbers really mean. That's also why there are entire groups of people just playing off what Robinhood does...Using their data to buy and sell based on popularity of equities and not performance

TireFire · Oct 15, 2020

TreeFortRichard said: ↑

Yup...very crazy story...highlights the importance of understanding what the numbers really mean. That's also why there are entire groups of people just playing off what Robinhood does...Using their data to buy and sell based on popularity of equities and not performance
Click to expand...

Not really. Even if he had racked up that much debt. Kid clearly had serious issues and no family support. I read the story when it broke. Thought it was ridiculous to try and blame the platform but only human to try and look for a an easy scapegoat.

It’s just money. Kid was 20. Coulda left the country , or filed BK or just laugh it off. Sad stuff

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