because Iām not posting the full 100% someone is therefore surely lending me the money to cover the balance?
Furthermore, there is no disputing we have differing ideas of what leverage means.
I am of the view that leverage as it relates to options simply means spending the same amount of money as you would otherwise but being able to participate in more upside (or crucially downside).
@hrochfor1 it will really help if you explain the settlement:
āowning the contractā ā āexecuting the optionā ā āselling the shares you donāt own on the underwriters sideā (hint this is where someone might need to borrow money on your behalf *depending on underwriterā ā āreceiving your profitā
But Iām not really experienced with options so I think it would be good that you explain this.
If you are being required to post margin you are either trading using a margin account or do not meet the credit risk requirements so either you are trading on margin or the broker does not have confidence in your ability to settle.
A retail investor who sells a PUT, even if they post 100% IM, is trading on margin when the trade becomes unprofitable and the VM margin calls start coming.
Their liabilities exceed the balance of their account so of course VM calls are coming in at that point. Again this is a nuanced point but the reason they have to post VM is to manage the credit risk of the CCP not because they have borrowed money.
Iām sorry Iāve explained that if you wonāt do me the courtesy of responding to my questions I wonāt do the courtesy of responding to yours. As you can see from my conversation with @buyhighselllow (good name by the way) I am perfectly happy being challenged etc. but I donāt particularly enjoy being goaded.
This entire thread which now has the attention of only 3 people started because of an article that highlighted the dangers of trading options. You contest that options are not leveraged products, that is your position. I contest they are. The important point here is that some derivatives have risks which the underlying user might not be aware of. My only real point is that saying they are not leveraged does not further peopleās understanding of how dangerous they are.
I concede that you have a different idea to what it means to be leveraged, and I recognise your point. I do not recognise your definition of investment. I think one can argue that investments can be classed as speculation and speculative positions as investments.
The only thing I think we can wholly agree on is that some financial products have inherent risks that are not immediately obvious to all who use them. Which comes back to your point about educating people.
I agree on your comments about investment definitions. Mine come from my economics background which has a typically stricter rule than, say, finance.
In regards to my name, I have confusingly enough made money buying high and selling low over the years, but thatās anther topic.
Derivatives, quite frankly, scare the sh*t out of me. It does not stop me trading them but it does keep sometimes keep me up at night.
I do fundamentally think that if people were more educated about risk in general then people would make vastly different decisions.
Anyway I think we can agree we have exhausted this topic but I think itās ended well. Maybe we should close this thread and should post the link again in a fresh thread?
Iām happy to close the thread as we have deviated from the real issue concerning the article first posted.
FREE TO READ: A very sad read but the most in depth article I have seen on this topic.
Maybe instead of deleting this thread this article can bring it back on topic. I looks like Robinhood is going to make some minimal changes. Anyone who wants to learn more about options can follow the link below (this is recommended by the SEC):
https://www.theocc.com/Company-Information/Documents-and-Archives/Options-Disclosure-Document
Iām just learning options trading and this thread has confused the hell out of me. But back to the main topic itās very sad and will no doubt be a case study for future computer science ethics classes along with the patriot missile bug. He was so young as well, he could of declared bankruptcy and it would of been behind him before he hit 30.
He didnāt even lose any money. That is the worst thing about this. It looks like he was between two trades with the outgoings about to be matched by incomings.
Apologies about the thread the points were rather pedantic but I think it is important.