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A vertical call debit spread triggers a margin call. Does that shound right?
- Thread starter jayre
- Start date
Quote from jayre:
So you are suggestins a broker having a "policy" of liquidating when there is no risk for them.. Sounds redicules policy for me at best, at worst its a unethical (ilegal?) setup for the broker how to take advantage of their clients.
Yes I am suggesting that. And no the broker isnt taking the other side and getting a good price. They are clearing out. This isnt forex where this shit happens all the time.
This happened to me as well last week. I use Ameritrade(for the moment)
I had a call spread on BIDU and a put spread GS. I legged into GS so I had (.05 spread , max 5.00) 5 bucks at risk. The call spread cost me .60, max 5.00. They said a Reg T and I needed to put in 500.00 or there may be a forced liquidation. Crazy!!! I thought I was losing my mind.
I had a call spread on BIDU and a put spread GS. I legged into GS so I had (.05 spread , max 5.00) 5 bucks at risk. The call spread cost me .60, max 5.00. They said a Reg T and I needed to put in 500.00 or there may be a forced liquidation. Crazy!!! I thought I was losing my mind.
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?
Yes I did. If you check those old IB threads, someone (can't remember who) posted some examples of admittedly unlikely events where those verticals can lose money. So, there is some theoretical risk, that in a rare event might translate into real loss.
Also, broker liquidation policy is always a risk, and I mentioned that (re IB) in the old threads.
I must say, it's suspicious that you are not mentioning more trade and broker details.
Ok, it seems I am not the only one.Quote from billsafari:
This happened to me as well last week. I use Ameritrade(for the moment)
I had a call spread on BIDU and a put spread GS. I legged into GS so I had (.05 spread , max 5.00) 5 bucks at risk. The call spread cost me .60, max 5.00. They said a Reg T and I needed to put in 500.00 or there may be a forced liquidation. Crazy!!! I thought I was losing my mind.
Below is the quote of OCC re debit spread.
Upside Maximum Profit: Limited
Difference Between Strike Prices - Net Debit Paid
Maximum Loss: Limited
Net Debit Paid
A bull call spread tends to be profitable when the underlying stock increases in price. It can be established in one transaction, but always at a debit (net cash outflow). The call with the lower strike price will always be purchased at a price greater than the offsetting premium received from writing the call with the higher strike price. Maximum loss for this spread will generally occur as the underlying stock price declines below the lower strike price. If both options expire out-of-the-money with no value, the entire net debit paid for the spread will be lost.
Quote from jayre:
Ok, it seems I am not the only one.
Below is the quote of OCC re debit spread.
Upside Maximum Profit: Limited
Difference Between Strike Prices - Net Debit Paid
Maximum Loss: Limited
Net Debit Paid
A bull call spread tends to be profitable when the underlying stock increases in price. It can be established in one transaction, but always at a debit (net cash outflow). The call with the lower strike price will always be purchased at a price greater than the offsetting premium received from writing the call with the higher strike price. Maximum loss for this spread will generally occur as the underlying stock price declines below the lower strike price. If both options expire out-of-the-money with no value, the entire net debit paid for the spread will be lost.
That's just Options 101. Here is some info on IB's liquidation policy: http://ibkb.interactivebrokers.com/taxonomy/term/134
Options 201.
"In addition to the policy of force liquidating client positions in the event of a real-time margin deficiency ........."
"IB's margin compliance policy does not allow for transfers or other deposits if there is a margin violation/deficit in the account. In the case of a margin violation/deficit, the account in deficit is immediately subject to liquidation. Automated liquidations are accomplished with market orders, and any/all positions in the account can be liquidated. There are cases where, due to specific market conditiions, a deficit is better addressed via a manual liquidation.
Funds deposited or wired into the account are not taken into consideration from a risk standpoint until those funds have cleared all the appropriate funds and banking channels and are officially in the account. The liquidation system is automated and programmed to act immediately if there is a margin violation/deficit. "
Quote from comintel:
If IB (or equivalent for another broker), file a formal complaint in the trouble ticket system.
This is a separate category and is a prerequisite in any case to going to arbitration.
This is not the same thing as opening a trade issue ticket which you have likely already done. It goes to a separate department.
Many times they will adjust if you do as I suggest above.
What do you mean by "filing a formal complaint in the trouble ticket system"?
Quote from ForexForex:
That's just Options 101. Here is some info on IB's liquidation policy: http://ibkb.interactivebrokers.com/taxonomy/term/134
Options 201.
"In addition to the policy of force liquidating client positions in the event of a real-time margin deficiency ........."
"IB's margin compliance policy does not allow for transfers or other deposits if there is a margin violation/deficit in the account. In the case of a margin violation/deficit, the account in deficit is immediately subject to liquidation. Automated liquidations are accomplished with market orders, and any/all positions in the account can be liquidated. There are cases where, due to specific market conditiions, a deficit is better addressed via a manual liquidation.
Funds deposited or wired into the account are not taken into consideration from a risk standpoint until those funds have cleared all the appropriate funds and banking channels and are officially in the account. The liquidation system is automated and programmed to act immediately if there is a margin violation/deficit. "
So there's your answer, someone looked it up for you. Learn your lesson. Imagine if you had added a zero to the money risked. Perceived risk isnt true risk.
The OP has finally confirmed his account was liquidated by IB by writing a negative review of the firm. (See review on ET homepage under Broker reviews)
The OP must have violated an IB in-house rule to get his account auto-liquidated. I'm still curious why the OP will not give any details of his situation and response by IB...
Quote from jayre:
"Picking up nickels in front of a bulldozer"
IB is the perfect choice a) If you are trading with cash/no margin b) you day trade and close all your positions when you leave your computer.
If you donât fit one of the above criteria you are out of luck. Yes, you will pay only $1 per trade, 1.6% interest on your margin loan but thatâs the nickels you are picking up in the front of the bulldozer. When there will be a market crash like 1987/2008/2010 you will be liquidated real time and you will give back all your nickels. With todayâs HFT itâs only a question of time when the next 1 day crash will be coming.
The OP must have violated an IB in-house rule to get his account auto-liquidated. I'm still curious why the OP will not give any details of his situation and response by IB...