/biz/ - Business & Finance

This is a follow-up to my thoughts yesterday on why Robinhood and other brokers banned the purchase of stocks & options and the effect it had. I'm not an expert in of any of this and would love any input or modification to these thoughts.

This is concerning all of the mooning stocks and was not limited to Gamestop. GME and the 140% short positions that exist were not the immediate reason for their decision. However, most of the manipulated stocks had high short positions which was a factor.
After writing so many naked calls on these highly volatile stocks the brokers had to pay margins to the clearing houses that were untenable. The only way that they could maintain solvency was if the underlying stock prices were to fall.

The Brokers' solution was to manipulate the stocks' prices downward by banning new purchases. Not only did this directly lower their liability for the contracts that they would not have been able to cover, but it disrupted the momentum of these stocks. Most of the banned stocks aside from GME and AMC are still down ~50% from Wednesday. The amount they would have had to pay is directly related to how many of these naked calls expired in the money. The squeeze caused by covering ITM calls would have been exponentially worse the higher the stock prices. (1/2)