Thousands of retail option traders who made prescient bets against shares of Signature Bank and SVB Financial Group, the Silicon Valley Bank holding company, were relieved on Tuesday when shares of both failed banks resumed trading on over-the-counter markets after a roughly two-week trading halt.
It marked the end of what an academic has described as one of the more interesting episodes since a boom in retail option trading began in 2020, around the time that the COVID-19 pandemic was declared.
Since the end of 2019, average daily trading volume in all U.S. equity options has doubled with more than 20 million contracts changing hands per day as of the end of 2022, according to data provided to MarketWatch by options exchange Cboe Global Markets
CBOE,
Faced with the prospect that their would-be winning positions might prove worthless because of a technicality, traders turned to social-media platforms like Reddit and Twitter for answers and support.
A social-media pressure campaign ultimately helped to push some brokers to take steps toward making customers whole. Even afterwards, though, some traders were left with huge margin-call balances that left them potentially exposed to tens, if not hundreds, of thousands of dollars of risk.
MarketWatch based its account of this episode on interviews with four traders who were affected due to put options they held on SVB
SIVBQ,
or Signature Bank
SBNY,
as well as documents and comments from various brokers — along with a review of interactions on Twitter and Reddit.
Turning to Twitter for answers
Traders initially found themselves in limbo after the Options Clearing Corp. suspended interbroker settlement for options on Signature and SVB, essentially leaving brokerages to deal with customers individually.
While the OCC’s statements stipulated that settlement for expiring options would be delayed, it offered little insight into how options traders could move forward.
The OCC didn’t return a request for comment from MarketWatch.
Since Silicon Valley Bank and Signature Bank had been placed into FDIC receivership, traders felt that their options should be worth their maximum value as shares in both companies would likely become worthless, traders said. The only problem was that trading of both stocks had been halted, making it impossible for brokers to accurately value option positions.
Brokers initially were content to allow all options to expire worthless. Communications with broker help desks initially showed platforms were unable or unwilling to help customers exit their positions, meaning those with winning bets might see them expire worthless, while those on the other side of the trade would be spared punishing losses.
A significant amount of money was at risk. A Bloomberg News report estimated the value of put options on Signature and SVB expiring on March 17 at nearly $300 million, assuming the market value of both companies plummeted to effectively zero, which eventually happened. Shares of both banks were trading at just a few pennies on Wednesday, according to FactSet data.
Massive margin balances
But even after some brokers decided to help customers, traders were left with massive margin-call balances, keeping them on edge until the shares started trading again, some told MarketWatch.
Robert Bogan, a healthcare IT analyst from Miami Beach, carried a margin-call balance of nearly $179,000 for more than a week in his Robinhood
HOOD,
account after his puts ag
