Quote from jayre:
That's news to me, that a poistion can be liquidated even when there is no margin involved. So if you buy a stock with cash & you write a covered call and the options market goes crazy, and the ask on the call becomes more expensive for a few minutes would you get a margin call? That's not what I was told by my broker before.
Just consider if we have a May 6th flash crash again, are we all in danger of liquidation?
Quote from tradingjournals:
Your understanding of margin may not be the same as what is written on paper.
In addition, is your account in the same currency as the instrument on which your positions were in?
There are all sort of hidden risks, and misunderstood/misperceived things in options.
For instance people say short put is the same as short call and long underlying when in fact they are not the same in general.
Quote from jayre:
Guost this is what you wrote last year, did you changed your mind since..?
Quote.
There is no risk beyond the premium paid in a debit spread. Just like there is no risk beyond the price paid for a share. If someone sells MSFT for -$100 per share, should IB liquidate all MSFT longs?
Can you explain what the risk is when the calls are far out of the money & not close to expiration? Bases on the OCC the max risk is the debit paid.Quote from tradingjournals:
I do not think he changed his mind, but rather he may have become aware of risks he did not see at the time he wrote his earlier comment. If a person does not see risks, it does not mean the risks do not exist.
Quote from jayre:
Can you explain what the risk is when the calls are far out of the money & not close to expiration? Bases on the OCC the max risk is the debit paid.
Disagree, there is no risk that the $65 call should trade for "less" then the $75 call when both have the same expiration (unless for a few min if the market is distorted). So there is no risk for the broker of the spread turning negative.Quote from Rehoboth:
I still think you are confusing theo risk verse closing the position cost.
We understand what you are saying, you paid cash for a vert spread. So your max loss is the cash you laid.
But your broker views it different, it may calc your max loss as the cost of getting out of your position right now. Now if that is the case, do you understand why your loss can be more then the cash paid?
If the $75 call is more expensive then the $65 call that would create arbirtage, wouldn't it?Quote from StarDust9182:
Just curious. What do you mean by an obviously distorted market and to whom is it obvious that it is distorted?
One person's distortion time is another person's trade window.
Arguing that you are right and the broker is wrong may get you some satisfaction but will not help you learn or get your money back.
Even if a poll on ET shows that we all think you were jobbed by the broker, that will not help you in the real world but merely support your own judgement.
I was still trading when the spread kicked into 50 cents for a while. I took action and didn't judge since that is what I saw at that moment and judgement didn't help me make any money.
There is actually a great trading lesson in this if one looks carefully.
I am sorry that you feel the broker was wrong.
This is what I mean when I say distorted market. A $75 real value can't possibly be lower then $65 real value. Can the market be distorted for a few minutes "and not have the correct price"? (your quote) yes. Does it mean that the account or the broker is at risk of loosing more then the debit. NO.Quote from StarDust9182:
" Not every quote you see is the correct price at the time you see it.