I think you’re correct. There is a saying something like: in a crisis, all correlations go to 1. I believe it’s likely one of those things that’s okay most of the time and then, every once in a while, causes extreme and systemic problems. Therefore, Robinhood will probably do it because the incentives are aligned.
It requires the correlation if you are going to price it accurately. But with a parlay people just look at the high payout and estimate the chances wrong. By like, a lot.
It's the fact that's easy to sell that makes it attractive, not that it's easy to price.
It is truly risk free. You always buy the call using the customer's money but you only give them the call if every part of the parlay is correct. Assuming they charge a commission in addition to the asset price to cover transaction processing they shouldn't lose money
Edit: I don't really know how pricing these things usually works but I could see taking some risk on to price these attractively
I get that Robinhood's business model is stealing from the poor and giving to themselves, and their customers are mostly unsophisticated, but why wouldn't the customers just buy the underlying call options if the price to buy the parlay is the sum of the underlying options?
Because, to quote your comment, "their customers are mostly unsophisticated."
And, part of the appeal of the product, is they only pay out if *all of them are in the money. Hence the "lotto-like" return profile.
Re:The Lottery-fication of Everything
by quamserena on Wednesday October 22, 2025 @12:42AM
(#45664956)
While Robinhood users are unsophisticated (seriously use another brokerage…) I think that they would see through this.
I don't see how this is risk-free - surely it involves some opinion on the correlation between the assets?