Robinhood options errors

[FSU]

So it appears that Robinhood may have switched option call and puts orders last week. It seems that they were down most of Wednesday as well. Reports on Reddit and other locations give examples of people being filled at outrageous prices on their orders that correspond with the put prices if entering calls and vice versa. Accounts were then locked up and margin calls issued.

If this is all true, Robinhood would be stuck with some big losses, especially given the spreads on 100 dollar puts which they now own and had to get out of. They then offered the special 3% deal on checking and savings accounts which seems like a play to get capital quickly.

Anybody here have any first hand knowledge of this?

 

[MarkBrown]

it's your fault you used robinhood right, face it.

you thought it was going to be easy that you would cheat the system and not have to work at it or study. stick it to the man don't pay commissions, run with the safety of the herd the wolf won't get you.

they sell your execution off to specialist who pay them to rape you. you are to blame not robinhood.

 

[KeLo]

So it appears that Robinhood may have switched option call and puts orders last week. It seems that they were down most of Wednesday as well. Reports on Reddit and other locations give examples of people being filled at outrageous prices on their orders that correspond with the put prices if entering calls and vice versa. Accounts were then locked up and margin calls issued.

If this is all true, Robinhood would be stuck with some big losses, especially given the spreads on 100 dollar puts which they now own and had to get out of. They then offered the special 3% deal on checking and savings accounts which seems like a play to get capital quickly.

Anybody here have any first hand knowledge of this?

No, but Twitter has some RH users that posted complaints.
Obviously there was a problem.
https://twitter.com/hashtag/robinhood?lang=en&lang=en
https://twitter.com/hashtag/sueRobinHood?src=hash&lang=en

The RH "insured 3% savings" announcement seemed premature IMO.

Robinhood lacked proper insurance so will change checking & savings feature
"But Harbeck tells me that means users would effectively be loaning Robinhood their money, and the SIPC doesn’t cover loans. If a market downturn caused the values of those securities to decline and Robinhood couldn’t cover the losses, the SIPC wouldn’t necessarily help users get their money back."

https://techcrunch.com/2018/12/14/robinhood-insurance-sipc/

 

[zdreg]

https://nordic.businessinsider.com/...robinhood-halting-new-share-purchases-2018-8/

article says a lot about the character of both the firm and their customers.

 

[guru]

Robinhood is making money from selling order flow and has big backers who can cover losses, probably even up to $1B. But losses shouldn’t be that big if they recalculate proper option values and adjust the accounts, with some credit to customers.
While the more they lose the more money will those lucky Robinhood users make, so not sure why MarkBrown is saying “it’s your fault”. Your fault that you won lottery and Robinhood lost money?
While it’s possible that nobody loses or wins much.

In terms of offering 3% interest, there is no way they could simply pull this out of a hat in a day, without spending months preparing. There is also no way they plan to simply steal that money and use it to pay for losses. SEC, lawyers and others will be looking closely at the recent mishap and such blatant theft would stand out from miles away. Who would even think of something like this.
The money is simply destined for treasuries where Robinhood is planning to make less than 3% while funding the difference for some time, then either adjust the offered %interest or get back the 3% one way or another. Their goal is to grow at huge expenses like Amazon and Uber, while undermining big brokerages and banks. There is a cost to that and Amazon was losing money for years to get there.
Robinhood will easily survive various temporary problems, while losing money is the name of the game if you want to grow. Only old stubborn people were laughing at Amazon for losing money, while others invested in them. Same with Tesla and pretty much every startup. Some will go out of business but Robinhood is well funded and protected by big investors who see huge potential in making Robinhood a hoisehold name in variety of financial services. In a few years the people who laugh at Robinhood now will be laughed at for driving around looking for Sears and yelling at people on the street: “it’s your fault you shop at Amazon!”.

 

[qlai]

you thought it was going to be easy that you would cheat the system and not have to work at it or study.

Cheat the system? So I send the order to TOS and pay per ticket charge plus per contract charge and ToS will send the order to same Citadel and will get a kick back from them too!? So they will f@#$ me on both ends!? Tell me please why sending a limit order for free is a bad deal? If you have access to technology to direct your orders you are simply playing whole different game, that's all.

 

[guru]

article says a lot about the character of both the firm and their customers.

Yes, those users are not professional traders, but were introduced to trading and investing thanks to Robinhood. They’d never trade otherwise. While for many of them using Robinhood is like using any other app. Some spent more money playing games on their phones, with in-app purchases (some games raked in $billions).
Now with Robinhood they learned how to trade and some have grown their accounts considerably, some became pros at what they do, others lost money but may be back again. Some switched to other brokerages.
Would you prefer that the general public doesn’t get introduced to investing and trading, and the industry just feeds off of a few dying guys and some quants and hedge funds?

 

[Pekelo]

Some personal stories:

old.reddit.com/r/options/comments/a6cah8/word_on_the_street_robinhood_flipped_option/

"My error occurred at market open. I don’t think C and P were flipped, but I sold a call contract that I offered for .05 limit sell for 15.5. Order was executed, received notifications that it was legit and $$ was available for trading for an hour after market open. Account was then frozen for day and a half. All sell orders I had were cancelled. They took the 1.5k back out and replaced my reinvestments (only $300 + $275ish I had in account already) with gold debt. ST options went from 100% ROI to nothing just in time for them to unfreeze my account. Now I’m in a margin call and I owe them money. Don’t know if that helps but I know they effed a lot of other people the same way on Wednesday. They called it “erroneous option execution” and are “sorry for the confusion”... "

 

[zdreg]

Would you prefer that the general public doesn’t get introduced to investing and trading, and the industry just feeds off of a few dying guys and some quants and hedge funds?

considering the funding they have received they should not be cutting corners on their trading systems. their systems should be 99.99% fail safe.
https://blog.robinhood.com/news/2018/5/9/robinhood-raises-363-million-to-expand-product-lineup

furthermore there is exactly one firm for retail customers that has invested in proper trading systems and does not receive payment for order flow, if you get paid for order flow, contrary to protestations by the financial industry, you are taking money out of the customer's pocket.

 

[guru]

Some personal stories:

old.reddit.com/r/options/comments/a6cah8/word_on_the_street_robinhood_flipped_option/

"My error occurred at market open. I don’t think C and P were flipped, but I sold a call contract that I offered for .05 limit sell for 15.5. Order was executed, received notifications that it was legit and $$ was available for trading for an hour after market open. Account was then frozen for day and a half. All sell orders I had were cancelled. They took the 1.5k back out and replaced my reinvestments (only $300 + $275ish I had in account already) with gold debt. ST options went from 100% ROI to nothing just in time for them to unfreeze my account. Now I’m in a margin call and I owe them money. Don’t know if that helps but I know they effed a lot of other people the same way on Wednesday. They called it “erroneous option execution” and are “sorry for the confusion”... "

Something sismilar happens when you own a spread and get assigned one leg, supposedly ending up with short stock. Robinhood doesn’t support selling shares short so they freeze the account for a day until they exercise the other leg. The account balance is also wrong during that time.
Not a good experience but Robinhood users deal with it and are still using it. Robinhood will get better with time and may offer more features including shorting and margin trading.
But of course there is always a chance they’ll screw up more than they can unwind. What matters in general is that some big investors now see opportunities in taking on big brokerages and banks. So the industry will change no matter what.
And just a year ago we didn’t hear much complaining about TD Ameritrade selling the order flow, while now some complain about this while others see new opportunities. It’s kinda interesting to watch all this and see where it may lead to.