> Something like 2M of 51M people have any crypto there, and only a small fraction would be overextended significantly
How do you know that?
For traditional securities, we have margin and prudential lending rules. These systems aren't perfect. But they incorporate lessons from crises past. One of those lessons is about how system risk can grow exponentially unexpectedly quickly.
I don't have the hard data of course. It's a guess based on crypto still being up over a 2 month period. I also assume people are roughly the same in Korea as everywhere else so only a fraction are being crazy reckless in their investment.
That's not to say that the losses aren't enormous for the largest margin speculators, but the vast majority can't be hurting too badly.
> almost anyone get get authorization to sell naked puts in the US market
Your broker is on the hook if you default. This means collateral requirements and risk limits. For example, see TD Ameritrade's rules [1]. These rules are filed with and reviewed by various regulators.
> Margin only handles the expected volatility of an instrument, not the tail risk
This sentence doesn't make sense.
The Federal Reserve's Regulation T limits initial margin to 50% [2]. If you have $10 of cash, you can't buy more than $20 of securities. This limits your losses to twice your principal, which margin lenders are supposed to ensure you can afford (via suitability checks).
This rule is part of why brokers won't accept deposits from credit cards. It's also why they ask you for information on your net worth, income, et cetera. There are further controls in place to make it difficult to e.g. take out a line on your home and use it to buy securities. None of these safeguards exist with cryptos.
Yes initial margin on a stock purchase for reg-t will be 50% and then reduce later to around 25%. The broker will be on the hook to their counter party, but you are now required to pay your broker. So a worse case situation is normally 4 to 1 leverage.
That is for stocks, with options the margin call can grow to a value quickly where a retail investor cannot afford it ever.
Edit: Looking at td margin schedule shows they'll require 20% in a reg-t account, so only 5 to 1 leverage at least. Still can risk $5k and owe 20k to your broker.
How do you know that?
For traditional securities, we have margin and prudential lending rules. These systems aren't perfect. But they incorporate lessons from crises past. One of those lessons is about how system risk can grow exponentially unexpectedly quickly.