Honestly, this doesn't surprise me at all. The interface in Robinhood makes me think it can only be useful for people that have 0 idea what they are doing. Case in point: their graphs (at least on Android) have no labled Y axis! Seriously, WTF.
> their graphs (at least on Android) have no labled Y axis!
It's the same on iOS.
I can't say I'm happy with Robinhood. It's dumbing down something that can get you into a world of financial pain if you don't know what you're doing.
If they want to target people that don't understand what they are playing with, they shouldn't be giving away options/crypto access/margin buying to people that don't understand those concepts. Expect a lot of people to lose a lot of money. /r/stupidfinance has some pretty great posts in which people were left in the cold after playing with fire in RH.
I know very little about stock trading. I shouldn't get in a world of financial pain if I don't trade on margin (Robinhood Gold Buying Power) and only transfer money I can afford to lose right?
That is treating Robinhood like a casino. I recognize I don't know what I'm doing at the casino. Therefore I don't use a credit card to buy casino chips and I have a hard stop-loss of a couple hundred bucks that's budgeted as entertainment money.
Seriously maddening : ( How hard was it to put the ticks on the axis? So that at least I can gauge how big the changes are? Those graphs are comically useless...
It's wrong because we don't want to simplify concepts to a level beneath the minimum information needed for understanding them. Call and Put specifically refer to what happens on maturity or exercise of the contract. You either call the stock from the counterparty, or you put it to the counterparty.
The only reason we don't refer to them as "buy" and "sell" options is because you can both buy and sell either of them. Nobody wants to shout into a phone "buy 10,000 AAPL Jan19 100 sells," and hope that the broker on the floor gets it right.
In actual fact, a call doesn't just represent "I think it will go up." Nor does the holder of a call always make money when the stock appreciates in value.
They are volatility products, and they decay with time. If you buy a put before a catalyst with a 9% implied move, and the stock drops 2%, you probably just lost money on event theta as the vol resets. How do you explain that a down option can lose money on a down move?
Giving a false sense of simplicity probably will tempt more folks into making losing trades on options.
How many people who trade options actually call up the shares at the end or vice versa? I'd imagine very few and even fewer on Robinhood's platform. I think a level of abstraction that clarifies things is fine.
> How many people who trade options actually call up the shares at the end or vice versa?
In-the-money options are automatically exercised by OCC at maturity, unless the holder contacts them and tells them to do otherwise. American listed single-stock options are physically settled, meaning that you either exercise them for stock, or you don't exercise them at all.
If you're short in-the-money options, you generally assume they will be exercised.
Also, if you have a deep in-the-money call option on a stock that pays a dividend, you may need to exercise it to capture the dividend. You will lose money if you fail to exercise.
Option exercises are sometimes contrarily decided (that is, not exercised when they are in the money) if the holder of a very large option position has a hedge that cancels out his stock delivery. In practice, this is infrequent, and you usually only do it when the market impact of trading out of your residual shares will lose more money than the intrinsic value you forgo by failing to exercise your options.
Robinhood will liquidate options prior to maturity if the holding account cannot afford to exercise them, but (A) this is done at a loss and (B) this will not happen if the account has enough capital to perform the option exercise.
"Up options" and "down options" are not a clarification nor a level of abstraction. Rather, they are a misnomer that suggests a false level of simplicity.
Isn't tempting people into making losing trades the point, though? Robin Hood presumably has some way of profiting from trades which does not include directly charging people, such as commissions. So the more confused novices are, the more valuable they are as resources whose money can be systematically extracted by counterparties.
How long do people stay around if they lose every time?
In an ideal world, people using Robin Hood would "win" like 49% of the time. Enough to keep them coming back like the casino, but let's not be unrealistic and expect some guys clicking around to out trade wall-street.
People don't get discouraged if they don't connect their failures to those profiting. Compulsive gamblers just need a way to avoid making the connection. There is a stock that I used to follow that kept plummeting indefinitely - it would very frequently issue more stock, so you could (and did) always have the opportunity to lose 90% or more of your investment. But maybe once in several years, there was a spike in the stock price, so apparently people kept putting more money in hoping it would happen again and/or believing in endless rationalizations why the printing of stock was finally over. There are people out there who, even when it's really obvious they are being regularly and systematically fleeced, will continue to bet on the idea that it can't go on forever.
IIRC aside from Robinhood Gold, they are mostly profiting from all the waiting you have to do (few business days) when you put the money in or take it out.
I don't know exactly how they would profit from option trades, but I have heard of something called "payment for order flow" and I believe it is a substantial reason why discount broker commissions are so low these days, let alone free at Robin Hood. I have faith that if a population of traders can be identified that consistently lose money, someone will figure out how to legally exploit that. Paying to attract them is also a good sign someone knows how to exploit them.
Options are relatively complex instruments with an enormous amount of risk involved. If you can’t understsnd the difference between “call” and “put” will you understand strike price and expiration date and that you will literally lose 100% of your money if an option ends up out of the money on the expiration date? I doubt it.
For example, Robinhood calls Facebook July puts that are 10% out of the money “medium risk.” In other words if Facebook doesn’t go up 10% by July you lose all your money.
Options are very high risk, high reward plays. Making that more accessible is... risky.
> What's wrong with removing the jargon from stock trading?
Because you're removing all specificity from it at the same time.
If you show me that screenshot without the text in the tweet, I'd have no idea what action it actually refers to. It could mean you're buying or selling an option. Or it could mean you're buying or selling a stock (potentially short selling). It could even mean you're buying stock on margin.
In fact, buying a call option is probably not even the most reasonable interpretation of "I think that this stock will go up", because purchasing the stock outright would be the default workflow. Especially since it doesn't even specify a timeline for the option[0]! Am I betting that it will go up today? Next week? Next month? Next year? There is literally no way to tell from that display.
And quite honestly: if you know about the distinction between buying equity and buying a call option, you will care about the difference between the two. And if you don't know about the distinction, you have no business trading options, because you'll undoubtedly screw yourself over.
[0] Timelines matter less than you'd think, because you can sell an option early to recoup its value and call options are always worth more alive than dead[1]. But it still matters, because buying an option that expires in a month is a very different bet from buying an option that expires in a year.
[1] In other words, you never exercise an option early even in markets where it's permitted.
I thought when you were approved for option trading you had to read and at least claim you understood "the Characteristics & Risks of Standardized Options". I didn't even know it was legal to simplify things to this extent.
I looked at the Robin Hood link posted elsewhere in this thread, and it links to "the Characteristics & Risks of Standardized Options" but it presents it as optional.
Elsewhere[1] it is stated "Prior to buying or selling an option, investors must read a copy" (emphasis mine).
Of course, after reading it you should be sure you understand it, but that's probably hopeless...
> It’s optimal to exercise options in some circumstances (deep in-the-money puts and sometimes calls before ex-dividend dates).
I was referring specifically to call options; I guess that wasn't clear. You're right, there are occasionally circumstances under which a person might want to exercise a call option ahead-of-time, but as a general rule, it's sub-optimal.
So much BS in your post and most of everyone ("elitist") here. If someone came here say this kind of thing about programming they would be voted to hell.
ie. If you do not know how pointers work you have no busines programming because you'll undoubtedly screw your app.
I don't think your analogy holds water, if only from the fact that "pass by reference vs value" is rooted in pointer knowledge, and is rather key to "not screwing up your app." (And as sister posts pointed out, messing up an app usually does not put ones finances on the line)
I also disagree with the core thrust of your post, but that's subjective so I'm listing this second. As someone who went from "financially clueless" to trading options over the last few years, I got to see my own mistakes firsthand, which were at least initially rooted in not understanding the implications of various vehicles and the patterns by which to use them, and that was even after quite a bit of time practicing in simulators.
No, I absolutely agree with the parent that there's a risk to not only trying to spoon-feed gambling (which is honestly how I see options, take it or leave it) under the guise of investing to uninformed consumers, but in splitting the jargon so a new entrant can't even easily bootstrap their knowledge by looking up the terms.
(I find it additionally funny to be arguing this, as I'm normally a staunch opponent to the Accredited Investor laws, but there's definitely a continuum between "keep poor people from using these vehicles" and "everyone and their grandmother can now shoot themselves in the foot without the most base validation that they know what they're getting into or have the tools to do so with eyes open")
> so a new entrant can't even easily bootstrap their knowledge
This is where the pointer analogy works. You don't need to use, but by knowing what a f pointer is, you increase your knowledge about the domain as you've put, by knowing the difference of "pass by reference vs value".
And messing up an app does not put "owns" finances at risks. But may put others by tons of different ways of bad written software (if released or used anyway). So you have more responsibility with software because it MAY affect others and not just yourself blowing your own money.
There's a difference between "gambling" in the sense of willfully taking a risk (that perhaps someone else thinks you should not take) and "gambling" in the sense of being a sucker who doesn't understand the rules sufficiently to avoid losing when it's not necessary.
There are many kinds of programming you can do without being an expert or having a degree...but it's scary if there is systematic encouragement of unskilled programmers to write smart contracts that risk real money.
The trouble is that Robinhood has a very low barrier of entry and now you have laymen who, if they don't understand basic finance terms, likely do not understand the fundamentals of trading options.
If you want to write programs without really having a clue, that's fine and educational for most purposes, just not if you're hacking your personal vehicle, pacemaker, or nuclear reactor.
If someone want to burn all their personal money, so what?
So basically: At least they will not be programming insecure things, even websites that leak millions of records every week by "thinking they know programming".
Too much double standard: "Lets make programming accessible so everyone can become code monkeys without clue, but do not touch my precious stock trading terms. We do not want anyone trying to get rich without a clue."
The terms are out dated. I disagree with "up" and "down" because that is even more wrong (I'm up for buying that stock like I'm up for a game of chess, and I'm down to sell these like I'm down to go to the movies? Is that what they mean? Way too colloquial for my liking).
Just be more descriptive instead of trying to re-purpose other words. A "call" should be "Buy on Date", abbreviated to BOD, and a put should be "Sell on Date", or SOD. You don't even need to google what the means, you can immediately understand it when you read it.
The medical field is going through a similar renaming. Doctors in the early stages of modern medicine would discover something and name it after themselves. Oppenheimer Test? Wtf is that you egotistical douche, just call it the tibia tickle test.
The comment you replied to was clearly referring to exercising options rather than buying or selling them. An American call option would be an option to buy something on or before a certain date. A European put option would be an option to sell something on a certain date.
Yes, the parent comment was referring to exercising options, but the whole point of my comment was about ambiguity and misunderstanding, so you're missing the point...about missing the point.
and the high vs medium risk statement is, at best, debatable.
If this is real, can anyone shed light on how they ensure a user has the capital required to purchase options? ie if I purchase 1 calls of GOOG and they expire ITM what does Robin Hood do if I dont' have $10,000 in cash for the exercise?
> ie if I purchase 1 calls of GOOG and they expire
There shouldn't be holding requirements for going long on options. At the most you lose your hypothetical gains (tho, wouldn't most brokers be nice enough to automatically exercise-and-sell for you for a small commission?)
That seems scary to me, because even if it normally works, if it fails, it's presumably not something customer service can "make ok" especially because they aren't charging you commissions and you are, as they say, the product not the customer.
At this point, customer service of the major discount broker I've used for many years is so abysmal that the last thing I want is a free alternative that promises to do more for me. It makes me think of how impossible it is to deal with Google when something goes wrong with their free offerings.
I think social media has become a societal problem because there is so much revenue available from exploiting addictive behavior, and the logic has to lead to brokers trying to catch up. If you are sensible with investing, the system doesn't need or want you.
As if we needed another reminder that Wall Street is a casino underwritten by the taxpayers. A welfare program run by the Fed for the rich. A market for fools, not a necessary institution to capitalize business.
