The last time Robinhood got into hot water with its users, CEO Vlad Tenev got hauled in front of Congress. Photographer: Daniel Acker/Bloomberg
If you had “Robinhood controversy” on your 2023 banking crisis bingo card, you’re in luck. The square just got called. Unlike the great meme stock rally of 2021, this brouhaha revolves around put options and how users of the broker’s app aren’t able to cash in on the collapse of Silicon Valley Bank and Signature Bank even as their bets are in the money.
Put options are a way for investors to wager that the price of a stock will decline. If the stock does go down, the trader can sell the shares at a higher price than market value, making a profit. Or they can sell the contract to someone else who thinks the shares will fall even further. If it works, it’s like winning the lottery with the added bonus of also getting to revel in someone else’s failure.
In the case of Silicon Valley Bank and Signature Bank, some Robinhood users saw the writing on the wall and purchased put options on the stocks before they collapsed. Of course, the banks did collapse. It should’ve been a windfall for those who saw trouble brewing.