Day Trading on Robin Hood

Well I finally downloaded the Robin Hood app.  Here's a review and some ideas on what you can do with it.  I decided to give it a try after my son has been touting it for the last few weeks and has been pretty successful trading penny stocks and more recently options.  So while this is a review of the app, it's also a discussion of some of the investing strategies that are available in the app.

Perhaps the best thing about the app is that all your trades are free, including options (which can be very expensive to trade on other platforms).  I used to trade options on Sharebuilder (now Capital One) and it used to cost me a small fortune.  For $5 per month you get the Gold account, which gives you larger instant deposits, access to Level II market data, margin loans and more investing tools and research.  One of the other nice features is that you can trade crypto currencies on the app (again with no fees).   The home screen is pretty simple and shows the value of your portfolio, a section of "cards" that have updates of interest to you, the stocks you own and then your watch list.  If you sign up for an account, they give you a free random stock.  I ended up with one share of Fitbit (FIT), but supposedly you have a chance to get something better like a share of Apple or equivalent.  Searching for stocks is easy, as is trading.  Also, linking your bank account is really easy and they support most of the major banks with just your online login and password.

What I was pretty impressed with was the support they provide for options trading, including simple explanations of how the contracts work and the duration / risk you are signing up for.  Options trading is a great way to use leverage to increase your investing returns, since you control a large amount of shares for a relatively small option premium.  What's perhaps most impressive is that the app supports more complex strategies including Straddle / Strangle and the Iron Condor, with very simple explanations. 

The Iron Condor is particularly intriguing for stocks that have a low volatility.  You essentially sell two puts and two calls that are set at different prices, forming a range and collect the premium up front.  As long as the stock trades within the range of the calls and puts until expiration, you make the maximum profit (which is the premium).  If the stock deviates higher or lower than the middle put and call range, you lose some money and if it goes beyond the second level in either direction, you take the maximum loss (which should be about 50%, since the premium you collected plus the value of the other "out of the money" option will offset the loss on the "in the money" option).  Your maximum profit would also be about 50%.  Repeating this in a regular cycle and reinvesting proceeds from each successful trade can build up your funds relatively quickly.  While straight option strategies can have a much higher profit multiple, this strategy limits your upside and downside risk while yielding an attractive return.  It's also non-directional, so you don't have to "bet" on a stock moving up or down, which I like.

The real trick for this strategy to work is picking a low volatility stock that trades within a tight range for extended periods of time.  Right now, we like INTC and NFLX for this strategy since these look to have very little price movement recently.  Best to avoid this around the time that companies have big announcements, like earnings season.  Trying this out next week with a small investment and will report back on how well this strategy works.

Hopefully you found this as intriguing as I did and it helps you Build Your Financial Fortress!

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