Submitted by CityofGrond t3_11u1nmz in wallstreetbets
If you’ve missed this drama among the noise here’s what’s going on…
Many traders (myself included) have been expecting the collapse of Silvergate and Signature banks since last year after the crypto bubble popped, buying puts and opening shorts.
The banks going under should result in a massive windfall for Put option holders, who should be able to collect maximum profit on the contracts.
But earlier this week it came to light that many major brokers were not allowing holders of put options on SBNY expiring today 3/17 to exercise them. The reason given was that because the stock was halted, a short position would have to be opened against the trade…and the brokers didn’t want to let that happen.
Theoretically the stock should start trading again somewhere close to $0 via OTC so the shorts would be able to cover, but it’s unclear when that will happen.
The OCC from their end put no restrictions on the options contracts, and sent a memo to brokers instructing they can allow clients to exercise, but many of them still refused.
A huge retail-lead campaign in the media and social media put a ton of pressure on the brokers and Options Clearing. Some of them (like Robinhood) finally caved and allowed the exercises. Many still did not allow it.
Of the brokers who eventually allowed exercising , multiple required extremely high margin requirements (like 2-3x the last trade price of $70 per share per contract). This means you’d potentially have to hold hundreds of thousands of dollars in your account to successfully collect your earnings.
Whoever wrote the puts (probably some big hedge funds) are being given a free pass to keep the premiums. While the put holders are taking 100% losses
TL;DR - If you’re playing strategies against bank and company collapses rn, you better make sure you sell your puts before it happens or roll them to longer expiry dates. You may lose 100% if not
Here are some articles on the situation: