(Reuters) - (This March 16 story has been corrected to say "to exercise their options position for Friday's expiry date," and not "to keep the position open beyond Friday's expiry date," after an official report's clarification, in paragraph 6)
Robinhood (NASDAQ:HOOD) Inc made an exception to its short position ban for clients who had winning 'puts' against failed lender Signature Bank (NASDAQ:SBNY), the Financial Times reported on Thursday.
Put options are contracts that give a buyer the right, but no obligation, to sell shares in future.
Shares of New York-based Signature have shed nearly 37% in four trading sessions since regulators took control of the bank on Sunday, making it the third largest failure in U.S. banking history.
Signature's collapse followed two days after California regulators shuttered Silicon Valley Bank on Friday that worsened concerns of a contagion and triggered a sell-off in financial stocks.
The investors had bought short-dated options on Robinhood and stood to make huge gains if the share price of Signature fell before the contracts expired.
On Thursday, Robinhood told clients holding profitable positions on Signature that it would make an exception to its rules and allow investors to exercise their options position for Friday's expiry date, the report added.
Robinhood did not immediately respond to a Reuters request for comment while Signature Bank declined to comment.