Perhaps the algo should know better to liquidate the entire position? Perhaps the people coding that algo should know when one leg is liquidated, the whole position should be? Perhaps, some attempt at communicating with the account holder might help? I completely understand IB's need for protecting it's own well being. But given that all powers rest with IB, how is it okay to completely disregard the account holders interest and well being?
avoiding automatic liquidation by IB
- Thread starter IBRex&me user
- Start date
Perhaps the algo should know better to liquidate the entire position? Perhaps the people coding that algo should know when one leg is liquidated, the whole position should be? Perhaps, some attempt at communicating with the account holder might help? I completely understand IB's need for protecting it's own well being. But given that all powers rest with IB, how is it okay to completely disregard the account holders interest and well being?
- IMO .... The OP should be monitoring his positions on expiry day and close them himself early in the day.
- On expiry day I close my positions shortly after market open - and enjoy the rest of the day off without worrying about OTM options expiring ITM.
- The OP was cutting it too close with this position - I assume it was GOOGL or AMZN.
That is correct. I'm very much aware of this risk. I therefore have no problem the position was liquidated. I decided to take on this risk, as I expected a bounce. It worked against me; my bad.
My problem is the way the position was liquidated. By removing the long leg of a credit spread (which is there to serve as protection) a defined risk position is changed in an unlimited risk position. In my view no broker should be able to change the risk exposure of it's clients in such a dramatic manner. My margin requirement went from 10k to 500k. This could have ended much worse.
The position should either have been liquidated by selling the spread as a whole or by first selling the short options and thereafter the long options.
I am not saying OP did everything as it should have been done. My point is this: IB found itself with a situation where they need to reduce / eliminate risk. That part is fine. But given that IB needs to "reduce / eliminate risk", are they doing it anywhere near what a prudent person / organization should do, even if they are looking after their own interests first, and the client second? Thread after thread it looks like IB does the right thing for themselves, but not the client, while we all spread the gospel that this protects "all the clients".
This is like communism: The state is doing supposedly what is best for all. But in reality, we all know what happens to all
Something smells here. Either the leg liquidated was the short one (ok, even that makes little sense since I'd imagine IB has enough sophistication to liquidate a spread as a package) and @Hivey is wrong. Otherwise, it should be up to the option OWNER to opt out from taking shares (you know, that's what option is all about) and the @def is being silly.
I was partially autoliq'ed on a box back in 2002 and IB covered individuals. I remember bc the ENE shit was going down and I was on my honeymoon. Jan 2002.
This classic sentence is misleading - particular the underlined part
"An option is a contract which gives the buyer the right, but not the obligation, to buy or sell an underlying asset".
It gives the impression that you can just forget about your long option position, and you have no obligation to take the shares. There is no warning about auto-exercise. The option trader must pay attention on expiry Friday.
Actually, as a buyer of an option you do not have an obligation to take the shares. You can opt out of auto-exercise; it can be done for a specific option (as long as you inform your broker before the cutoff) or as a default setting for the whole account (that might be possible or impossible for a specific broker, but I have seen it done).
On a BOX? Incredible. I assume you pulled your money out of that place right after you found out?