Successfully Stuck – Options Trading with Bank Failures
Those who short-sell are the enemies of many in the stock market, primarily retail traders. These cases are often uncovered when a short squeeze occurs, but other than that short-selling is often a viable option if you are extremely confident something will go down despite the infinite risk. There are always those who manage to short-sell right before market downturns like Michael Burry in 2006 and Bill Ackman in 2020, and everyday investors also catch individual stocks with shorts when it’s clear things aren’t going right.
This was shown right in front of us with Signature Bank and SVB, which lost most of their value when both banks collapsed. Many investors were able to cash in on the collapse through put options, which is essentially a leveraged short sell, but these unrealized gains have stayed unrealized. Both SVB and Signature Bank have been halted since their collapse, while just opening up in over-the-counter markets yesterday which has presented investors with problems regarding how to exit their position. Brokers have not been permitting investors to exercise their put options, and they have been valuing the shares at much different levels with Fidelity having the shares at zero, and Schwab having shares of SVB at $39.25. This is the first time brokerages are having to deal with something of this scale regarding bank collapses as the last time this occurred was in 2008, but it isn’t the first time brokerages have faced issues when it comes to fulfilling client demands. During the meme stock mania of 2021, many investors had trouble selling their shares on different brokerage apps due to brokerage firms not knowing where to value the shares. This leaves these investors with confusion as to what’s going to happen to their profitable position, and whether it could turn into a major loss for them.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
