Robinhood user commits suicide
Alexander Kearnes (20yo) commited suicide (RIP) after thinking he lost ~700k on options using Robinhood. (apparently the 700k displayed was not the accurate uncollaterised balance) In his suicide note he said he had no idea what he was doing.
Recently there's been huge media attention on robinhood, given how many have signed up for the zero commission trades esp in this coronavirus investing climate and the hype about buying dips.
I feel like yet again retail investing has been overly advertised to people who may not fully understand what they're dealing with. In this I really put some blame on Robinhood. I hope more don't follow.
fair points, however I don't think I completely agree with that.
if he actually was indebted 750k after investing something like 15k, then I'd think it'd be incredibly irresponsible of Robin Hood, and they would have contributed significantly to his death. However, it was just that the software didn't finish clearing his trade, I don't think they should be held responsible over that.
They're just not the type of company where a software issue would normally result in death. I think there has to be some pre-existing issues that he was dealing with if this was his reaction.
Agreed, that there has to have probably been some pre-existing conditions. Robinhood, like other brokerage trading accounts that offer options, blatantly asks whether you are experienced enough to trade options for a reason as I am sure this is not the first case in history where a user experienced a panic attack after losing options. Like with every important scenario in life, one needs to displace themselves from the influence of money and ask themselves "Am I doing the right logical thing?" RIP
Three is so much here that shouldn't have happend. No one should take their life over something like this. Still, there's a ton here that needs to be unpacked.
1) You had a kid with no experience trading options, let alone trading stocks. That's a problem. While I don't blame him for his lack of experience, I do blame RH for their lack of risk management and tolerance when it comes to those kinds of trades. I don't use Robinhood, so I don't know how easy it is to get approved to trade options. However, if this post on Medium is true, apparently all you need to do is buy 10 really cheap options contracts to get access to Level 3 Options trading. By Robin Hood's definition, Level 2 allows the buying of Calls and Puts, and covered Call/Put writing. Level 3 is their "advanced" options and allows the trading of spread, condors, etc. I don't know if they allow for naked writing, but if it requires you to have 10 options trades under your belt then the platform is effectively allowing anyone to go ahead and effectively engage in high risk behavior when they don't necessarily understand or know what they are doing on minimal guidance. If you look at E-Trade (since the forms are readily available), they have an extremely detailed questionaire for trading Options. Most brokerage firms, wifehouses, and banks do. It's called Risk Management for a reason. Options trading is a risky proposition. As a firm, RH has to make sure that their client base actually understands what they are doing is essential risk management.
2) Robinhood's at fault for having a shitty system. I don't care that it's free, or that they make money through routing orderflow to companies like Citadel, but they have had a history of shitty code. I remember like 6-7 months ago, there was a huge bug in how RH handled writing calls, allowing for "infinite leverage". I don't know if they fixed this, but this was a longstanding bug, but that's a problem. Again, I don't use the platform, so I can't say anything to how they display information, but not dispalying accurte balances is another problem. While I get that the software didn't finish clearing his trade, there needs to be a clear notification that the balance does not reflect trades that have not cleared. IF you don't have experience trading and you see a 700K Loss and there's no indication that tradeshaven't settled (or a notice that this does not reflect trades which haven't settled), it's going to be a massive shock. Most folks aren't able to rationalize a 700K loss other than "Holy Shit, I'm Fucked".
3) I get that RH is a free platform, but there is no reason to use a shitty platform when there are other free and better options available. Between the constant outages and their need to draw down their entire $200MM credit line during the height of the March Market Volatility, I'd be concerned in general.
4) On the subject of Alex Kearnes, he's not blameless here. He got in way over his head and screwed up. That's on him. He was trading things that he had no right to be trading given his level of experience. That's as much blame as I can put on him based on everything that's known about the situation. If he had other issues (ex. mental health problems),, they could have contributed to this, but because we don't know, I don't want to speculate on that. However, I think that the screwup was exaerbated by being a platform like RH. What I mean here is that RH's own problems as a platform contributed to Kearnes' screwups. Their poor risk management on Options Trading allowed him to get in over ahead. The display issue let him think he lost 700K magnified the effects of getting in over his head because he thought he just lost more money than possible.I honestly believe that it wouldn't have happened on a different platform. Again, I'm not saying he's blameless - he didn't know what he was doing and can be blamed for that- but being on Robinhood gave him the tools to think he blew himself up.
Could RH have been a little more careful with their UI? Probably.
Do I want to live in a world where every business has to be perfect on every little thing because one of their users might do something dumb? Absofuckinglutely NOT. You have no idea how many things in your life will be more expensive or simply not exist if we adopt that kind of attitude.
The kid didn’t understand the number he was looking at and decided the wise move was not to contact RH to clear it up, but rather to kill himself. Call me crazy, I think there might be a little more to that story.
This sanctimonious attitude toward RH and it’s “irresponsible” users isn’t about protecting anyone. It’s about a certain class of investor needing to feel that he's ahead in life because he’s not one of those little amateurs who uses RH.
I have news for those people: we’re all the little guy. Until you’re managing a few billion, you’re the little guy too. I use Fidelity for my institutional account and Ameritrade for my personal, and like RH they both have glitches that occasionally make a scary number show up on screen. Big bank prime accounts aren't above these problems either.
Everyone attacking RH and its users has their own issues. Many of those attacks are driven by jealousy from people who lost a lot in the drawdown, didn’t stick around for the comeback, and are now pissed that some broseph on RH made money on the comeback. That’s what all this is really about, a bunch of mediocre investors who don’t want to feel mediocre.
Really just wanna comment on the attitude towards robinhood investors. Yeah I use fidelity but that doesn't mean shit. I'm sure some of those guys on robinhood could make options trades that would make my head spin. And I'm sure there's others on there who have made more money in the past year than those on TD, fidelity, ameritrade, etc have made their entire time investing. Like that's real sweet you use ameritrade Jim, now how much did you miss out on during the rally you boomer?
Haters gonna hate is basically what it is. Who are you to tell someone they're a silly fool for trading on robinhood. Did we all forget that robinhood was the first to introduce 0% commission trades for retail investors? And everyone followed suit, so they must be doing something right.
I was saying the same thing you are, to be clear. Maybe you knew that but given the MS and the reply at the same time, I'm wondering if you didn't know that.
They are not the first. It was done in the 00s lol
Came here to say exactly this. 100% agree and think your points are very well articulated.
caveat emptor
sucks for the kid
and fuck robinhood for poor risk controls
Poor kid, rest in peace.
It's irresponsible to let retail investors trade options. Should only be allowed for qualified investors and institutions. 20 years old is not a kid. Old enough to vote, get sentenced to adult prison, buy a rifle, join the military. However, if you don't have a track record of financial acumen or assets, you should not be able to touch options or derivatives.
hard disagree, for the simple reason that gambling is fun as hell. the fact that some people are stupid doesn't mean retail investors shouldn't be able to use complicated strategies or even make directional bets.
the trades he was making probably weren't even that risky. he had a spread that got assigned and RH hadn't finished clearing it, hence the inaccurate balance. max loss still applies and you can't enter transactions that have max loss of more money than you've got (this used to be possible but is now fixed afaik)
Good analysis of the situation. This young man was apparently smart enough to know that he should stick to covered calls to limit his risk. How strange that, upon seeing a ridiculous balance, he didn’t have a more confident response of “how can that be?” Hard to make any sense of it.
Let's not forget that derivatives are mainly used as hedging instruments (insurance) and that much of the time trades are backed by collateral so they are pretty safe.
The issue comes with writing naked positions- this is why there exists tiered option trading privileges- I've been trading options for three years successfully and still haven't hit whatever requirement it is for the third tier- I don't mind because the ability to trade in such a fashion is counterproductive to my trading philosophy- but just wanted to point out that this has been thought through by the SEC, FINRA, and State/Local governments and Administrators of their individual securities laws.
How many people on Robinhood are using options as hedging versus college students making outsized directional leveraged bets they don't understand? I don't think regulators have thought through the implications of the options market expanding to be virtually free of charge and of wide access to everyone. You're a responsible user and investor. Many people are not.
I realize that I have a bad take on the whole issue. These issues are just really sad. I had thought the whole /r/WSB stuff was just memeing but apparently people are ACTUALLY trading like this? It's totally irresponsible.
I don't think it's irresponsible to let retail investors trade options. I think it's irresponsible to allow anyone to trade options without having risk management plans in place. That's my issue. If you, as a retail investor, want to open up an options account with whatever broker you want to, the limitations should be based on their discretion. Most places won't let you trade options until you've had real experience. As I said above, if you can get permission to write spreads after 10 making only 10 Options trades on RH, that's irresponsible on RH's part regardless of your track record. When it comes to financial acumen though (assets are always an easy one to use as a factor), how do you actually prove it?
And to your point about calling him a kid, I know he's an adult. I think it's more choice of vernacular.
It’s classic caveat emptor, plenty of people are capable of using options appropriately to hedge risk or generate income via covered calls. This is tragic, but restricting options to institutional investors only is not the solution.
guy spent too much time on WSB
This is obviously terrible and very sad but I'm curious as to what his thought process was after he saw that his account was negative $730k. From what I read, this was the first part of his trade and the second part would post later and he wasn't anywhere near that far in the red. It just strikes me that if I saw that balance I would want to find out why, freak out, talk to people and try to figure it out, which during that time it would all have corrected itself. It's not like a loan shark was standing outside his bedroom asking for $730k right then and there. It just seems like a very fast escalation and he didn't take any time to try and understand it. Not sure if there were other mental health issues at play here, but I imagine there were.
GET RICH OR DIE TRYIN'
Robinhood shoudl be sdued.
r/agedlikemilk
If people are allowed to buy BTC, gamble, join the military, etc... Then they should be able to invest in whatever they want.
Doesn't make it right lol. Imagine joining the military and regretting it.
It's a fate worse than death
Fuck off, corpdev beta
There is something deeper within Robinhood that will lead to this company imploding. Outages, bad press, bad mistakes and people dying are making me think the company's going down in a few years.
Going back to my earlier post on this thread, it looks like the Co-Founders/CEOs put up a blog post on the Robinhood Website about this. The Blog is dated 6/19 in case people are reading this later and can't find the post since it looks like it's all done as a single page instead of separate posts. It's amusing to see that my first two points were addressed in their post. While it's nice to see that this is forcing them to reevaluate how they allow options trading access, are updating how they handle notifications about early options exercise and balance notification, and providing resources on early options exercise, it feels like this was a response to the Bad PR they are getting.
Please explain to me how you can loose more money than you originally paid for an option. Isn't the entire point of an option that you simply do not exercise it in that case?
Certain types of options writing exposes you to lots of risk, or even unlimited risk:
Selling puts - stock can go to zero and your max loss is (strike * [# contracts]) - [Premium Collected]
Selling calls - stock can go to infinity and if you weren't covered when you wrote them, your losses will be infinite as well.
I only viewed it as you being the party that bought the option. So RobinHood allows people to sell options and derivatives? If so, that is completely nuts
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