Robinhood Inc (NASDAQ:HOOD) has reportedly decided to make an exception to its short position ban for customers who had placed winning “puts” against failed lender Signature Bank (Nasdaq: SBNY), the FT revealed on Thursday (March 16, 2023).
Put options are essentially contracts that provide a buyer with the right, however, not the obligation, to sell their outstanding shares in the foreseeable future.
Shares of New York-headquartered Signature Bank have dropped more than 35% in the four trading periods since regulatory authorities had taken control of the banking institution this past Sunday. It has reportedly been one of the largest banking failures in US history.
Signature Bank’s demise came just a few days after California’s regulatory authorities moved to close down Silicon Valley Bank this past Friday. These developments have now worsened concerns of an ongoing contagion and also led to a major sell-off in financial stocks.
As reported by Reuters, the investors had entered short-dated options via Robinhood and were set to make substantial returns if the share price of Signature dropped prior to the expiration of the contracts.
On Thursday (March 16, 2023), Robinhood reportedly informed customers entering profitable positions on Signature Bank that it will be making an exception to its existing rules and permit investors to maintain the position for the expiration date on Friday, the report confirmed.
Robinhood’s management had not yet provided additional comments on this matter, meanwhile, Signature Bank has refused to provide any comments at this time.
