Automatic liquidation of near expiration options by broker

[LM3886]

Greetings,

On Friday, I started longing a few hundreds of SPY call option contracts that would expire on the same day. My account did not have enough fund to pay for the stocks if the call would expire ITM and exercise, and I had no intention to hold the option through expiration. An hour into the trade, when I was making good money, my broker, Futu Bull, sent me a message and warn me about insufficient funds for a possible exercise and they would close the position. Since there were still 3 hours before the market close, I though I still had time for the gain to improve before closing. Within 10 minutes after the message, my position was automatically liquidated at market price. I ended up with a big loss. Had the position not been automatically liquidated, I could have more than doubled my original gain.

I have been with another broker for a few years and never had such things happen. It was nothing about margin deficiency. Since I was longing the option, my loss was capped, and there were still hours left to close the position to prevent the exercise. The broker could have waited closer to market close to automatically liquidate.

I'm wondering if this has happened in this community with the same or different brokers. Thanks!

 

[OptionsOptionsOptions]

Looking at Fridays SPY chart and the times of your trades I don't see how the calls made money.

• 12 noon = SPY at about $372.89
• 1pm = SPY at about $369.26
• 1:10pm = SPY at about $369.12

The SPY was going down during your trade.

 

[caroy]

Greetings,

On Friday, I started longing a few hundreds of SPY call option contracts that would expire on the same day. My account did not have enough fund to pay for the stocks if the call would expire ITM and exercise, and I had no intention to hold the option through expiration. An hour into the trade, when I was making good money, my broker, Futu Bull, sent me a message and warn me about insufficient funds for a possible exercise and they would close the position. Since there were still 3 hours before the market close, I though I still had time for the gain to improve before closing. Within 10 minutes after the message, my position was automatically liquidated at market price. I ended up with a big loss. Had the position not been automatically liquidated, I could have more than doubled my original gain.

I have been with another broker for a few years and never had such things happen. It was nothing about margin deficiency. Since I was longing the option, my loss was capped, and there were still hours left to close the position to prevent the exercise. The broker could have waited closer to market close to automatically liquidate.

I'm wondering if this has happened in this community with the same or different brokers. Thanks!

I've had this issue with Tasty Works. I like to trade expiration day straddles for a move and have had two experiences where they closed the trade. I had clicked monitoring the position and was actively adjusting prices. It wasn't a big deal difference of $20 on a one lot. I sent an email and followed up with the trade desk the next day. Had a good conversation about it. Said even though I clicked monitoring they would still reserve the right to autoliquidate if I didn't have the funds to risk exercise and taking the stock. I plan to add much more capital in the coming months and then my understanding is it won't be an issue. They also said I could call them when the positions were on and talk to the risk team and they would leave it alone but added if it is very busy and turbulent markets they may still liquidate. I still trade the straddles I just get out an hour before the close. Frustrating but I can live with it. If I was in your position I'd be more upset about it. Turning a winner into a loser is a whole other story.