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Comment by H8crilA | Hacker News Reader

Selling deep ITM options is one step in the "hack" to create infinite leverage / infinite buying power.

Buying weekly OTM options is the "yolo" they do once they mess up Robinhood's margin into giving them hundreds of thousands of USD of buying power.

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Right, but looking at the $1M guy's positions he doesn't own naked calls/puts it's mostly a covered call on $F.

That's actually super smart.

If you ever get such ridiculous margin you should buy things that have high chances of very small profit, such as selling deep OTM options or credit spreads. Wait for expiration, unfold the scheme, collect your profits, disappear.

If you leverage up to $1M a small 2% profit with 95% chances of success is an easy thing to achieve by selling options, and would pay you $20k instantly. In the 5% outcome your margin will just totally blow up, like LTCM in 2000, or the whole idiotic concept of Value-at-Risk in 2008.

This is bad advice. Assuming your plan is not to pay back if your $1m goes bad, your edge comes from that scenario, so you actually want to maximise the chances of it. Much better to "put it all on black" and take a 50% chance of making a 90% profit - also easy to achieve by buying options. For best results, have a friend do the same thing but put it all on red, and agree to split the money.

On the other hand, if you aren't planning on running away from your losses, you shouldn't take the 5% risk of a 100% loss to make just $20k. Liquidate the options and put your money back in index funds.

That’s if you expect to be on the hook for downside risk. If you’re a teenager willing to go bankrupt (and face criminal charges) if the bet goes south then you should maximize your risk.

A 2% profit with a 5% chance of going busto doesn’t sound like a super smart trade, unless I’m missing something.

95% probability of winning 2% of $1mn = $20k

5% probability of losing $4k

Not so bad (if you can get away with it).

The expected value of such a trade is 19.2k. That sounds pretty fucking good to me. Of course, there’s some externalities not accounted for in that math.

Yeah curious what Robinhood does here e.g. if they close his positions right now he's probably made 5 figures or so given the upward move in $F. Do they let him keep it or what?

They may be on a hot meeting with the SEC right now.

He doesn't benefit at all from $F going up because he's written call options on his entire stock position.

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