So this kid exploited a flaw in Robhinhood’s trading algorithm that let him buy $50,000 of options with borrowed money after only depositing $2000 and it monumentally failed when he tried to short Apple stock. 40 seconds into the video you can hear his soul leave his body.
Here’s a quick breakdown options trading if you’re not familiar:
So you know how stocks have certain dollar values right?
well there are contracts that exist that allow you to buy or sell stocks at a fixed price in the future.
These contracts, often referred to as “Options”, stipulate the right to buy or the obligation to sell a stocks for an agreed upon price between a buyer and a seller with a certain date set as the deadline for the contract to mature.
A “Call Option” represents the right to buy a stock for a predetermined price. The person who holds the contract wants the price of the underlying stock to go up so that they get a good deal when they buy.
A “Put Option” represents the contract holder’s obligation to sell the stock to a buyer for a predetermined price. The person who holds the contract typically wants the underlying stock to go down in value so that they can sell their stock for a rate that is above market value.
These “call” and “put” options also have a monetary value themselves and can be traded on certain marketplaces and allocated value. The problem is that these contracts’ $ values are extremely volatile when compared to the underlying assets. So if it’s the day before your call option is set to expire and the price of the underlying stock goes down by a few dollars the call option itself could go down in value by almost 100x that.
Related: Hedge Fund manager James Cordier apologizes after losing almost all of his clients money.
How James Cordier lost $150 million trading options