I can enter a buy order at IBKR (not confirming the last step, though). But I guess, no one is going to buy options with IV this high. Premium for an 650C expiring today is 2.12$ (+100% OTM !!!)
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Choice quotes from today’s Money Stuff (Reddit Traders on Robinhood Are on Both Sides of GameStop - Bloomberg)
Some insights into who was trading:
Retail investors were net buyers on Monday but net sellers for the rest of the week (through yesterday), and all in all quite balanced: About 49.8% of retail orders (that Citadel Securities saw) were to buy, and 50.2% were to sell.
[…]
Still I think this complicates the popular story of “everyone on Robinhood was buying GameStock at once, and none of them were selling, so the stock went up in a demonstration of the power of small-time traders to take on Wall Street.” Retail investors were both buying and selling, and selling a bit more than they were buying, as the stock was rocketing and (some!) hedge funds were losing their shirts.
And some good explanation on the settlement process (similar to e.g. @Julianek post).
But at some level of volatility things break down. If a stock is really worth $400 on Monday and $20 on Wednesday, there is a risk that a lot of the people who bought it on Monday won’t show up with cash on Wednesday. Something very bad happened to them between Monday and Wednesday; some of them might not have made it. You need to make sure the collateral is sufficient to cover that risk. The more likely it is that a stock will go from $400 to $20, or $20 to $400 for that matter, the more collateral you need.
Citron Capital’s Andrew Left, one of the short sellers who has faced a reckoning in the battle with the growing groups on Reddit’s WallStreetBets forum, said the firm will discontinue offering short-sell analysis after 20 years of providing the service. Left said on Wednesday his firm closed out of a GameStop short bet in “the $90’s at a loss of 100%.”
Source: Daring Fireball: Robinhood Needed Emergency $1 Billion Cash Injection, Yet Remains Underfunded
Robinhood Needed Emergency $1 Billion Cash Injection, Yet Remains Underfunded
Kate Kelly, Erin Griffith, Andrew Ross Sorkin, and Nathaniel Popper, in a multi-byline report for the NYT:
On Thursday, Robinhood was forced to stop customers from buying a number of stocks like GameStop that were heavily traded this week. To continue operating, it drew on a line of credit from six banks amounting to between $500 million and $600 million to meet higher margin, or lending, requirements from its central clearing facility for stock trades, known as the Depository Trust & Clearing Corporation.
Robinhood still needed more cash quickly to ensure that it didn’t have to place further limits on customer trading, said two people briefed on the situation who insisted on remaining anonymous because the negotiations were confidential.
Robinhood, which is privately held, contacted several of its investors, including the venture capital firms Sequoia Capital and Ribbit Capital, who came together on Thursday night to offer the emergency funding, five people involved in the negotiations said.
Basically, Robinhood blew it by not being honest about this. They should have just come clean and explained that they were short of cash to cover all the action on these stocks. But because they were embarrassed to appear insolvent, they destroyed their ethical reputation instead. And now it’s come out that they were in over their heads financially anyway.
Even today, Robinhood is not even close to allowing users to trade GameStop freely. A friend with a Robinhood account was only able to buy five shares before getting an error message that he held the maximum number of shares. And when you sell GameStop on Robinhood, you can only sell at market price, not a limit order. It’s a complete clown show.
TBH this raises serious questions about IB. If RH resorted to this because they faced serious issues, why did IB resort to stopping people buying GME? Have they faced similar serious issues? And if so, how safe a broker are they?
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Securities Subject to Special Requirements
Dear Client,
We are seeing unprecedented volatility in GME, AMC, BB, EXPR, KOSS and a small number of other U.S. securities that has forced us reduce the leverage previously offered to these securities and, in certain instances, limit trading to risk reducing transactions. IBKR currently has no restrictions on trading shares in those companies, and customers can open or close positions in those shares. Like many other brokers, IBKR placed options on certain of those stocks in closing only earlier this week. The plan is to lift those restrictions in an orderly manner while closely monitoring market conditions. To be clear, IBKR has not restricted clients’ ability to close existing positions in any of the U.S. securities subject to market volatility, and does not plan to do so.
The limits IBKR has placed have applied to all customers and were not limited to “retail clients” or any other group.
In order to keep you up-to-date on this fast-moving situation, we have put together a Knowledge Base site with current information on margin requirements and any trading restrictions for this group of securities. This site will provide the relevant information on the securities in one place, in addition to your existing ability to preview margin requirements prior to initiating a position and monitor them afterwards. Click here to review this Knowledge Base article.
We also invite you to visit the website for additional information regarding margin requirements and managing the risk of your portfolio
• For information on previewing margin requirements prior to order submission, click here.
• For general information on margin and margin requirements, click here.
• To monitor your portfolio risk using Risk Navigator, click here.
We understand that you may have experienced occasional market and systems delays or interruptions as a result of this week’s extraordinary volatility. Please be assured that IBKR is doing everything possible to keep you informed of developments that might affect your trading decisions. We appreciate your patience, and regret any inconvenience that you might have experienced over the past few days. Thank you for the trust and confidence that you continue to place in Interactive Brokers.
Interactive Brokers Client Services"
I’m not an expert but the broker will need collateral with options.
They have always required some collateral, for cash accounts it was always simple but for margin accounts there were varying rules depending on the option strategy.
They must’ve been busy today. After market close I received an urgent message stating the following:
We are contacting you because your account U******* has an option position expiring today (January 29) in GME, AMC or certain other US stocks that recently experienced heightened and unprecedented market volatility.
Then there were instructions on what to do after hours. The thing is, I did not have any options expiring today.
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So far, so correct - BUT that’s just not the whole truth
The reality is/was: IBKR had restrictions on trading shares in those companies, as they only offered closing trades! See GameStop short squeeze - #235 by clon
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I can confirm this. On Thursday purchase of GME was blocked, with a cash account
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Mostly out of curiosity, were the funds fully settled? Not proceeds from recent trade or recently wired.
Fully settled. Several thousands actually. And I tried to buy a single stock of GME
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Same for me. I had tens of thousands of USD settled and no outstanding transactions or orders for a few weeks - and was unable to buy even one or two shares of GME.
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Considering all the proof/experience by users here to the contrary, that not only stock-options but also stocks itself were allowed “closing” only, I wonder if IB is dishonest or is going on purpose on a double-meaning of their sentence here to look better to those who don’t know.
As in - …IB placed options (as in the trading options/choices that are available, buy or sell) on certain stocks to closing (i.e. sell) only…
The following is also a bit cheesy, because it’s kind of plain that retail clients were thereby more blocked in their desired action than others/hedge funds afaik.
Whatever, it’s disappointing, the blocking and these explanations/excuses.
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Is anyone else worried about this spilling over into a bigger crises? I am getting worried over this drama. As if it was not already difficult to invest, but now e have to worry about our brokers going bust too.
Don’t worry too much. The problem is amplified by the media coverage. The brokers seem to have found solutions so far by limiting the trading.
There was a much bigger crisis in September 2019 that the Fed solved by temporary liquidity bombs of the $100B scale per day and a more permanent QE of $100B per month since then - except for the COVID outbreak where the QE was much larger. Did anyone even know about that crisis?..
I’d worry more about traders in suits…
So far the system seems to have worked as intended, collateral requirements have been raised to ensure brokers wouldn’t take too much risk (which have forced some of some to curtail trading of volatile stock).
Yes the system survived, but if you consider the heavilyy crippling limitations put on the retail investors, maybe it is a bit much to claim this system has worked as intended.
Btw the blockchain gang must be lauging at how this legacy system works? T+2 sounds like a joke in this day and age.
Yeah probably T+1 would be a massive improvement. Not sure faster is a viable trade-off (there’s a batching vs transaction per second trade-off, plus in must cases a broker can do netting internally so batching a whole day of trades kinda make sense)
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What a week! @baldur @San_Francisco @arthur @LeStache
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It can happen. If this worries you too much and the reason is a potential bankruptcy of your broker, I’d advise to diversify around brokers (you probably already have some kind of diversification between 3A and taxable investments, if your wealth warrants it, splitting investments between brokers may make sense).
If your worry is that stocks might go down, then your asset allocation may not fit your tolerance for risk. You may want to reassert it and potentially lower the part of your investments that are in stocks.
We may be headed to a 2008-like crisis, or this may just be a blip and stocks will get back to climbing shortly. We never know. Be ready for both (i.e. : have some percentage of your assets invested in stocks, have whatever you need for your short term needs readily available (cash), be sure that you can hold through the fall and the recovery if a crisis happens (invest in a fund with a lower equity part if necessary)).
If you have to panic and get out, it’s better to do so early than to let the crippling anxiety of falls and false recoveries get the best of you near the bottom. If you do get out at some point, it’s better to get back in early. If the market shows signs of recovery, it’s time to get back in, no matter the shape of the economy or the word on the internet. You can always jump back out if necessary.