Retail Traders Left Hanging As Brokers Halt Transactions On Silicon Valley Bank Just As Bets Are Set To Pay Off

Retail options traders who thought they hit the jackpot with their wagers against the stock of Silicon Valley Bank and Signature Bank are now finding themselves in a world of hurt. Despite the collapse of the banks, the traders are unable to cash in on their put options after brokers halted trading in the stocks, leaving them with worthless contracts set to expire Friday.

Forbes first reported on Robinhood and Fidelity being among the brokers causing headaches for traders, but now it turns out that Charles Schwab, TD Ameritrade, Webull, E-Trade and Interactive Brokers are all making it difficult for traders to take their profits. Brokers are insisting that unless traders own the shares to satisfy the put contracts they’re basically out of luck unless the stocks start trading again before the options expire.

This has left a legion of retail traders to vent their outrage on Twitter. They’ve created SBNYPuts.com to track the responses they’ve received from brokers.

A spokesperson for Interactive Brokers, founded by billionaire Thomas Peterffy, told Forbes they’ll honor the contracts on Friday. That is, if the holder either owns the shares already or has the cash to pay for borrowing them.

“On expiration day, Interactive Brokers will allow customers to manually exercise any of their expiring option positions in SIVBVB
and SBNY, as long as their account is sufficiently funded and has the permissions required to carry the stock position that will result from the exercise,” the broker’s statement read. “Per OCC, no options in those series will be automatically exercised.” The OCC would be the Options Clearing Corporation. They’re the biggest equity derivatives clearinghouse in the world, serving as the middleman between buyers and sellers tasked with making sure that everyone is playing by the rules and set to get paid what they’re entitled.

A representative for Charles Schwab and TD Ameritrade echoed Interactive Brokers.

“Clients of Schwab and TD Ameritrade who fully understand the risks can exercise options in SIVB and SBNY,” the spokesperson wrote to Forbes in an email, referring to Silicon Valley Bank and Signature Bank by their stock tickers. “Importantly, regulation does not allow short positions to be carried in IRA accounts, nor may they be permitted in other retirement or cash accounts.”

Of course, if the stock doesn’t start trading again by Friday, there won’t be much point in exercising the options. That’s because the stock prices they’re tied to won’t reflect the current reality — that they’re worthless — but rather the price before trading stopped.

The other brokers didn’t immediately respond to requests for comment. Neither did Nasdaq, the exchange where both banks’ shares are listed, when asked if there was any update or guidance about when trading would resume.

The OCC put out memos regarding each of the banks once their stocks stopped trading. The upshot being: not our problem.

“The National Securities Clearing Corporation (“NSCC”) will no longer accept SBNY exercise and assignment activity for settlement,” the memo for Signature Bank read (the same thing was said for Silicon Valley Bank options). “As a result, all exercise and assignment activity for SBNY options beginning March 13, 2023, will be subject to broker-to-broker settlement.”

The situation has caught the attention of well-known short-seller Marc Cohodes, who is advising traders to call their lawyers and is considering a class action lawsuit to help them out.

“A simple solution is that every day the stock is halted should extend the expiration date by a day,” Cohodes told Forbes. “These are valid contracts. I have hundreds of DMs from hard-working people who hit it big and aren’t being paid. Why have these options if they aren’t going to be paid? It’s a rigged game. The OCC is an absolute disgrace.”

Cohodes, who has become something of a folk hero since he called FTX a scam well before its collapse last fall, says he doesn’t own any of the puts but doesn’t want to see the little guy get screwed again. He can also commiserate. Cohodes tweeted that he’s been in a similar situation before.

For his part, Cohodes is curious himself about who is on the other end of the trade.

The answer to that question is anyone’s guess. The options market is notoriously opaque. It could be hedge funds, large asset managers, pensions, or who knows who else.

“I have zero money in options in SBNY, but it’s so outrageous that these guys are screwing the public again,” Cohodes told Forbes. “I’m looking at the market makers.”

The big questions now are when these stocks will start trading again and who risks losing their shirts if or when they do. Until then, retail options traders will be left to stew in their frustration, wondering if they’ll ever see a dime from their correct but ill-fated bets.

“I think there’s major collusion between the brokerage firms and market makers to screw the general public,” Cohodes said. “The bank has been seized. The equity is worthless. President Biden said the stock is worthless. Let it trade. It’s outrageous.”