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Comment by codecamper | Hacker News Reader

The elephant in the room that I don't see much discussion about is the use of options by small retail accounts.

There are piles of rules around trading in accounts < $25,000.

But then those same guys are allowed to trade options.

An option has a 100x built in leverage.

A simple solution to this problem is to require the underlying amount of margin or cash in the account to purchase the option. ie. If you want to buy a $3 option for BBBY (costing $300) then this will take $2800 from your initial cash or margin.

Yes, this effectively puts options out of reach to small investors, but... maybe that's a good thing.

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>Yes, this effectively puts options out of reach to small investors, but... maybe that's a good thing.

What a fantastic way to ensure that only The Right People (TM) can make money off of anything else other than trading shares.

> What a fantastic way to ensure that only The Right People (TM) can make money off of anything

To be fair though, this is why the regulators exist. And they've got their post government careers to worry about so they will have to do something behind this supposed calamity. But don't worry, like the owner who crams their cat into a brightly colored sweater, they're doing it to protect you.

This argument is equivalent to supporting the IRS going after small-time tax cheats because the big boys - with billions in public revenue lost by their fraud every year - are "too difficult" to prosecute.

Regulators exist to prevent the most dire threats to a system - the system being the American economy, not simply financial markets (and their profits). They should act like it.

If a crisis manufactured by Wall Street hubris and capitalized upon by retail traders functionally crashes the system by way of a massive wealth transfer, so be it. Regulators should be concerned with the setting up of the earthshaking domino set in the first place, not with taking a chainsaw to the hand that goes to knock everything over.

Not really.

It's about removing leverage from the system.

> But then those same guys are allowed to trade options.

You act as if they are allowed to so symmetrically. I'm pretty sure they can only *buy* options, in which case there is no "extra" risk outside of what they paid up front.

Why would you hinder that from a false risk/margin perspective, if not but just to block the little guy.

No you can absolutely sell options (even uncovered)

Ah wow didn't know that. Then I join your initial sentiment.

Not really my point that selling options is the problem.

imo, allowing < 25k account holders to buy short dated options should not be allowed due to their outsized effect on stock price. And the tendency for that price rise to snap back like an overstretch rubber band. It's just creating more volatility.

options trading are already heavily tiered based on risk and exposure at every major retail brokerage

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