A vertical call debit spread triggers a margin call. Does that shound right?

[jayre]

I see there are quite a few people here that are experts in options so hopefully I can get answer here. I only trade vertical spreads that don't require margin. My understanding was that with a covered debit spread your maximum loss is the debit you paid.
Lately I received a margin call because a a debit spread. What happened was because of the extreme market volatility the bid and ask spread became wide, and for a short time the $65 call that I owned was pricing lower then the $75 call I was short (the stock itself was by $28). The question is, does that sound right since all the position where covered?

 

[rew]

This sort of suckage can happen in real life even though it's completely irrational. After all, if the short calls were exercised you'd immediately exercise your long calls and get out with a profit. Did you have other positions that were using up your margin? It would have to have been a very large trade for a mispricing of your debit spread to have caused a margin call.

 

[jayre]

Not a single other position. Zero margin requirment, was just market going crazy. Does that sound right?

 

[dragonman]

Quote from jayre:

I see there are quite a few people here that are experts in options so hopefully I can get answer here. I only trade vertical spreads that don't require margin. My understanding was that with a covered debit spread your maximum loss is the debit you paid.
Lately I received a margin call because a a debit spread. What happened was because of the extreme market volatility the bid and ask spread became wide, and for a short time the $65 call that I owned was pricing lower then the $75 call I was short (the stock itself was by $28). The question is, does that sound right since all the position where covered?

This is very strange. Did they force you to liquidate the position or was it just a "technical" margin call which did not result in any forced liquidation since the prices immediately thereafter corrected themselves?

 

[jayre]

Quote from dragonman:

This is very strange. Did they force you to liquidate the position or was it just a "technical" margin call which did not result in any forced liquidation since the prices immediately thereafter corrected themselves?

Forced liquidation..

 

[lazar206]

Quote from dragonman:

This is very strange. Did they force you to liquidate the position or was it just a "technical" margin call which did not result in any forced liquidation since the prices immediately thereafter corrected themselves?

I would agree. This is strange

 

[moonmist]

Quote from jayre:

I see there are quite a few people here that are experts in options so hopefully I can get answer here. I only trade vertical spreads that don't require margin. My understanding was that with a covered debit spread your maximum loss is the debit you paid.
Lately I received a margin call because a a debit spread. What happened was because of the extreme market volatility the bid and ask spread became wide, and for a short time the $65 call that I owned was pricing lower then the $75 call I was short (the stock itself was by $28). The question is, does that sound right since all the position where covered?

Something similar happened in May 2010. The following is a long thread. Hence, I did not follow the whole story by reading every post:

http://www.elitetrader.com/vb/showthread.php?s=&threadid=198144&perpage=6&pagenumber=1

http://www.elitetrader.com/vb/showthread.php?s=&postid=2833428#post2833428

 

[jayre]

Quote from moonmist:

Something similar happened in May 2010. The following is a long thread. Hence, I did not follow the whole story by reading every post:

http://www.elitetrader.com/vb/showthread.php?s=&threadid=198144&perpage=6&pagenumber=1

http://www.elitetrader.com/vb/showthread.php?s=&postid=2833428#post2833428

Thanks for the refrence. I have read it & it seems that in that case the account had forex position as well. in my case there was no other positions. Is that the way it should work?

 

[Eliot Hosewater]

Who is the broker?

Was just reading elsewhere someone who has some DOTM short puts said that TD Ameritrade just noted a drop in account balance while Interactive Brokers gave a margin call. They guy added cash but IB still liquidated some positions.

 

[jayre]

Quote from Eliot Hosewater:

Who is the broker?

Was just reading elsewhere someone who has some DOTM short puts said that TD Ameritrade just noted a drop in account balance while Interactive Brokers gave a margin call. They guy added cash but IB still liquidated some positions.

Not ready to go into much details yet about my sitiuation, Just trying to find out if it makes sense or not.