Put Options Confusion May Lead Robinhood Users to See Their Profits from Bets Against SVB Disappear by End of Week
Robinhood clients are complaining that the trading app isn’t letting them cash in on their put options against the now-collapsed Silicon Valley Bank and Signature Bank.
Put options (or just “puts”) are contracts that give investors the right to sell a specific amount of shares at a predetermined price, called the strike price, within a certain time frame — meaning if the stock does go down, they can exercise their contracts and sell their shares at a profit, or sell the puts to another investor who’s betting the stock price can still go down.
Robinhood users who wisely bet on the banks’ fall are left in the dark about the status of their proceeds. According to the trading app’s users, Robinhood is not letting them sell their contracts or get their payments — and many of these puts are set to expire on Friday.
According to Forbes, it’s likely that Robinhood, along with other trading apps like Fidelity, aren’t following through on letting users exercise their options because the banks’ shares are no longer in the market, “so it’s a bit of a logistical nightmare to buy the shares if you don’t already own them to satisfy the contract.”
But it is also the nature of the instrument that’s causing some confusion for those with puts but no shares.
“To exercise a put, you need to be able to buy shares from the market OR already hold them. Alternatively, you can sell the put itself,” Twitter user Just Frank explained. “A put entitles you to sell 100 shares at a specific price. If you don’t have any shares, and you can’t buy any, how are you going to exercise?”
Robinhood, which was supposed to be the common man’s response to snooty Wall Street, has fallen short before. It found itself way in over its head during the 2021 meme stock rally where it found itself unable to catch up with and cover for the high volume of trades. The company has yet to fully recover, and here we are again.
READ: Robinhood: Will The Coming Payment for Order Flow Restriction Hurt Earnings?
Robinhood CEO Vlad Tenev on Wednesday said that they are working to resolve the matter but did not elaborate further.
As of Thursday morning, it appears that Robinhood has resolved the issue for the SBNY options, but details are still scarce as of this writing.
Information for this briefing was found via Twitter, Forbes, and the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
