<p>More than
two years after Robinhood, one of the most popular trading service providers
for retail clients, banned ‘meme stocks’ trading in the midst of a speculative
frenzy, the company has once again found itself under retail investors’
criticism. This time, traders are complaining about the alleged inability to
realize profits from their bets placed against the collapsed Silicon Valley
Bank (<a href=”https://www.financemagnates.com/tag/svb/” target=”_blank” rel=”follow”>SVB</a>) and Signature Bank (SB).</p><p>Robinhood Users Cannot
Cash Out Their Bets Against SVB</p><p>The
controversy centers around put options, which allow investors to bet on the
decline of a share’s value. If the share value falls, the investor can sell it
at a higher price than the current market value, thereby earning a profit.
Another option is to sell the contract back to another market participant who
believes that the price may fall further.</p><p>Some of
Robinhood’s clients purchased put options just before <a href=”https://www.financemagnates.com/cryptocurrency/svb-crisis-impact-on-singaporean-startups-limited-says-central-bank/” target=”_blank” rel=”follow”>SVB and SB collapsed last
week</a>, and correctly predicted the market’s future. However, they are allegedly
facing issues with collecting their due profits. According to their complaints,
Robinhood is not allowing them to sell their contracts or receive payment. As
many of these put options on the shares of the collapsed banks are set to
expire this Friday, this is causing growing frustration among affected
customers.</p><blockquote class=”twitter-tweet”><p lang=”en” dir=”ltr”>Keith is this legal from Robinhood? I have a put against SBNY and they are saying it will expire worthless. Apparently many others are experiencing the same. <a href=”https://t.co/rM43LdKgAg”>pic.twitter.com/rM43LdKgAg</a></p>— SlapCityFightPicks (@slapcitymmabets) <a href=”https://twitter.com/slapcitymmabets/status/1635794053660053504?ref_src=twsrc%5Etfw”>March 15, 2023</a></blockquote><p>The issue is
that the shares are no longer being traded, making it difficult to purchase the
shares required to fulfill the contract if the user does not already own them.
Furthermore, given that the affected stocks are already experiencing
significant losses, few people are interested in purchasing these contracts, as
there is limited potential for further gains. As a result, the situation has
become a logistical challenge for Robinhood and a frustrating predicament for
its users.</p><blockquote class=”twitter-tweet”><p lang=”en” dir=”ltr”>Problem is that Robinhood says if I own shares the put can hangout on my account or I can force exercise it, but since I don’t own shares my put will “disappear” at expiry instead of hanging out on my account until the freeze is lifted or the OCC makes another determination.</p>— JohnnyDubs44 (@JohnnyDubs44) <a href=”https://twitter.com/JohnnyDubs44/status/1635808886086148096?ref_src=twsrc%5Etfw”>March 15, 2023</a></blockquote><p>Robinhood’s
CEO Vlad Tenev addressed the issue after Forbes’ report. He wrote on
Twitter that the company is currently working to resolve the issue as soon as
possible.</p><blockquote class=”twitter-tweet”><p lang=”en” dir=”ltr”>We’re working to resolve this ASAP … stay tuned</p>— VLAD (@vladtenev) <a href=”https://twitter.com/vladtenev/status/1635868988814262272?ref_src=twsrc%5Etfw”>March 15, 2023</a></blockquote><p>As it turns
out, Robinhood is not the only company facing this problem. Retail options
traders report that they cannot exercise their options with broker Fidelity
either.</p><blockquote class=”twitter-tweet”><p lang=”en” dir=”ltr”>Currently talking to securities lawyers on why Fidelity won’t allow me to exercise my <a href=”https://twitter.com/search?q=%24SBNY&src=ctag&ref_src=twsrc%5Etfw”>$SBNY</a> PUT contracts seeing as the bank has been seized the stock should be well below the $50 strike. Updates to follow. <a href=”https://twitter.com/hashtag/SBNYPUT?src=hash&ref_src=twsrc%5Etfw”>#SBNYPUT</a></p>— Spence ☕️ (@tspencer322) <a href=”https://twitter.com/tspencer322/status/1635760952267403264?ref_src=twsrc%5Etfw”>March 14, 2023</a></blockquote><p>Experts
explain that it is difficult to require the exercise of options on shares that traders
do not own. However, traders may ask why they were able to purchase these
options in the first place if owning the shares was a prerequisite for their
exercise in a situation such as the one described above.</p><p>Users of Robinhood Remember
GameStop Saga</p><p>The
Robinhood platform was created as a place to democratize trading and give retail
investors access to the market with the same market terms as institutional and
corporate players. <a href=”https://www.financemagnates.com/forex/analysis/how-the-race-to-zero-fees-changed-retail-trading-industry/” target=”_blank” rel=”follow”>This has largely succeeded</a>, as traditional brokerages have
had to adjust their offerings due to increasing competition and forget about
high transaction fees in favor of commission-free trading.</p><p>Robinhood
experienced a real boom in popularity during the pandemic when people locked in
their homes often threw themselves into the capital markets out of boredom.
This triggered the previously unknown phenomenon of the ‘memefication’ of
trading and the emergence of ‘meme stocks’. </p><p>One of the
most popular examples of this period was the astronomical rise of Game Stop
stocks, aggressively shorted by hedge funds. As retail investors banded
together to play against the big players, with more joining their ranks daily,
Robinhood <a href=”https://www.financemagnates.com/forex/brokers/interactive-brokers-robinhood-move-to-curb-gamestop-frenzy/” target=”_blank” rel=”follow”>took the controversial decision</a> to block trading in these stocks on
its app. IG Group, Charles Schwab and TD Ameritrade also decided on a similar
move, but Robinhood being the most media-savvy, received the most criticism.</p><blockquote class=”twitter-tweet”><p lang=”en” dir=”ltr”>GameStop’s stock situation explained: Robinhood, short squeezes, and Reddit: <a href=”https://t.co/7uOI4OZlIt”>https://t.co/7uOI4OZlIt</a> <a href=”https://t.co/1UywzP0Klp”>pic.twitter.com/1UywzP0Klp</a></p>— GameSpot (@GameSpot) <a href=”https://twitter.com/GameSpot/status/1355176428967522311?ref_src=twsrc%5Etfw”>January 29, 2021</a></blockquote><p>Over time, the company, almost like a centrally controlled economy, <a href=”https://www.financemagnates.com/forex/brokers/robinhood-allows-users-to-buy-100-shares-of-gamestop-2000-in-nokia/” target=”_blank” rel=”follow”>allowed
users to purchase a maximum predetermined number of shares</a>.</p><p>Eventually,
trading activity returned to normal, but many traders were cut off from
profits. Two years after, the situation may repeat once again.</p>
This article was written by Damian Chmiel at www.financemagnates.com.
