Retail traders have been left in the lurch as more brokers halt trading at the Silicon Valley bank just as bets are due to pay off

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

Forbes initially reported that Robinhood and Fidelity were among the brokers giving traders headaches, but now it turns out that Charles Schwab, TD Ameritrade, Webull, E-Trade and Interactive Brokers are making it difficult for traders to make their profits. Brokers insist that unless traders hold the shares to satisfy the put contracts, they are out of luck unless the shares start trading again before the options expire.

This left a legion of retailers venting their outrage on Twitter. They created SBNYPuts.com to track the responses they have received from brokers.

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

“On Expiration Day, Interactive Brokers will allow clients to manually exercise any of the expiring options positions in SIVB
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and SBNY, as long as their account is adequately funded and has the necessary permissions to carry the stock position resulting from the exercise,” the broker’s statement said. “Per OCC, no options on these series will be automatically exercised.” The OCC will be the Options Clearing Corporation. It is the largest equity derivatives clearinghouse in the world, acting as an intermediary between buyers and sellers, tasked with ensuring that everyone plays by the rules and gets paid what they are entitled to.

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

“Schwab and TD Ameritrade clients who fully understand the risks can exercise options on SIVB and SBNY,” the spokesperson wrote Forbes in an email, citing Silicon Valley Bank and Signature Bank from their stock indexes. “Importantly, the regulation does not allow carryovers of negative positions into IRA accounts, nor are they allowed into other retirement accounts or cash.”

Of course, if the stock doesn’t start trading again by Friday, there won’t be much point in exercising the options. This is because the prices of the stocks they are linked to will not reflect the current reality – that they are worthless – but rather the price before trading ceased.

The other brokers did not immediately respond to requests for comment. Neither did Nasdaq, the stock exchange on which the two banks’ shares are listed, when asked if there was any update or guidance on when trading would resume.

The OCC released notices about each of the banks once their stocks ceased trading. The bottom line is: it’s not our problem.

“National Securities Clearing Corporation (“NSCC”) will no longer accept SBNY exercise and assignment activity for settlement,” the note for Signature Bank read (the same was said for Silicon Valley Bank’s 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.

“A simple solution is that every day that inventory is interrupted should extend the expiration date by one day,” Cohodes said. Forbes. “These are valid contracts. I have hundreds of DMs from hard working people who are making it and not getting paid. Why have these options if they are not going to pay? It’s a rigged game. The OCC is an absolute disgrace.”

Cohodes, who has become something of a folk hero since calling FTX a scam long before its collapse last fall, says he doesn’t own any of the slots, but doesn’t want to see the kid get ripped off again. He can also forgive. Cohodes tweeted that he had been in a similar situation before.

For his part, Cohodes himself is curious 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 on SBNY, but it’s so outrageous that these guys are ripping off the public again,” Cohodes said Forbes. “I’m looking at the negotiators.”

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 sit in their frustration, wondering if they will ever see a penny of their correct but ill-fated bets.

“I think there is a lot of collusion between the brokerage firms and the market makers to fool the general public,” Cohodes said. “The bank was seized. Equity is worthless. President Biden said the stock is worthless. Let it trade. It’s outrageous.”