Biogen halted, options expiring today.

[zdreg]

Due to the assignment my buying power got very negative and my broker auto-liquidated all stock directly the next morning straight at the open + some of my other positions.

Although my short stock was fully covered by the long options, with no delta at all, theoretically there was no risk, but due to the risk management policy & algo's of my broker my whole account got messed up.

Had they not auto-liquidated everything directly and given me an hour to resolve the issue, it would have all been fine though

Your situation is unfortunate, In a regular margin account by Fed margin regulation options are not considered as an offset again a stock position. If you understood the regulations and firm policy perhaps a phone call would have stopped the auto liquidation.

You should look into an account call portfolio margining in which options can offset a long or short position.

 

[Option_Attack]

Yes this is a great example of what can go wrong. With the current large crop of newb Wallstreet Bets type folks slingin' options right and left, wonder how many just got wiped by BIIB?

Not too long ago I saw where someone lost about $30K, I think their whole account, from TSLA. Guy did just 5, $1 wide bull put spds. $500 total risk (yeah right) Nice conservative trade, was "safely" OTM on exp. There was news, TSLA dropped in AH, and he got assigned on all. Was put like $250K stock. He didn't get notice until it was well after deadline to exercise. If he had only known... So broker closed him out Monday and of course it did not go his way, so goodbye account. In a perfect world he would have gotten notice in time: "Dear Mr Smith, you have been assigned on your TSLA short puts. Would you like to exercise your long puts to safely net out the position?" But the real world just doesn't work like that...

 

[destriero]

Sometimes the risk isn't always that clear. Especially not for beginners that trade spreads. They think the value of the spread is the risk, but obviously there's more than that.

A few months after I started trading I lost $15k because I traded 50 calendar spreads, for a total debit of $500, where I got assigned on the short leg (even though expiration was still 6 months out!!). I thought my risk was only $500, but god was I wrong.

Due to the assignment my buying power got very negative and my broker auto-liquidated all stock directly the next morning straight at the open + some of my other positions.

Although my short stock was fully covered by the long options, with no delta at all, theoretically there was no risk, but due to the risk management policy & algo's of my broker my whole account got messed up. They didn't liquidate the long options, so now the delta on this position was huge. I tried to close and repair everything asap, but with the wide markets at the open and stock moving in unfavorable direction, this joke cost me quite a bit.

Had they not auto-liquidated everything directly and given me an hour to resolve the issue, it would have all been fine though. Just an example to illustrate how newer traders can blow up without them realizing they have a risky position on.

You should have understood your assignment risk. Blaming Interactive Brokers is absurd. Don't hold DITM calendars on American-style options once the short leg of the synthetic trades under a buck. And that's no guarantee, but it's unlikely that a large assignment will occur.

Now WTF were you trading ITM calendars at a dime? Stick with OTM if you're trading a terminal delta position.

Same strike calendars are equivalent. Straddling calendars is simply doubling exposure. IOW, buying 10 put and call calendars at the $100 strike is arb-equivalent to holding 20 put calendars or 20 call calendars.

 

[zdreg]

"Dear Mr Smith, you have been assigned on your TSLA short puts. Would you like to exercise your long puts to safely net out the position?" But the real world just doesn't work like that..

Your suggestion is not workable particularly on expiration day. A possibly more reasoned approach would be a prior signed customer agreement which allows the broker to automatically exercise the long option if the short option is exercised.

 

[newwurldmn]

What's the reason it got halted the whole day? Looking at their chart I see the reason for a halt, but not perse why it's for the whole trading day and especially not on expiration day.

Some people go bankrupt on this... of course, not the pro's, but the less experienced traders. IV and associated premiums in this stock were insane and I'm sure some traders decided to sell put spreads on this one, where the spread itself would have been very low risk, but the individual short options in that spread not.

why would the chart tell you it should be halted?

 

[newwurldmn]

Your suggestion is not workable particularly on expiration day. A possibly more reasoned approach would be a prior signed customer agreement which allows the broker to automatically exercise the long option if the short option is exercised.

Not feasible on expiry day. All instructions have to be sent to the occ at the same time and then the occ allocates assignments.

 

[zdreg]

Due to the assignment my buying power got very negative and my broker auto-liquidated all stock directly the next morning straight at the open + some of my other positions.


Your situation is unfortunate, In a regular margin account by Fed margin regulation options are not considered as an offset again a stock position. If you understood early exercise, the regulations and firm policy perhaps a phone call would have stopped the auto liquidation.

You should look into an account call portfolio margining in which options can offset a long or short position.

 

[destriero]

Yes this is a great example of what can go wrong. With the current large crop of newb Wallstreet Bets type folks slingin' options right and left, wonder how many just got wiped by BIIB?

Not too long ago I saw where someone lost about $30K, I think their whole account, from TSLA. Guy did just 5, $1 wide bull put spds. $500 total risk (yeah right) Nice conservative trade, was "safely" OTM on exp. There was news, TSLA dropped in AH, and he got assigned on all. Was put like $250K stock. He didn't get notice until it was well after deadline to exercise. If he had only known... So broker closed him out Monday and of course it did not go his way, so goodbye account. In a perfect world he would have gotten notice in time: "Dear Mr Smith, you have been assigned on your TSLA short puts. Would you like to exercise your long puts to safely net out the position?" But the real world just doesn't work like that...

Yeah, don't hold concentrated spreads in single names (shares) past the close on LTD. Cover it whatever the cost. Most companies with listed options will not release data; earnings, etc., on the LTD before an OpEx (Fridays) due to the inherent risk. IOW, you won't see AAPL, AMZN, GOOGL release on a Friday.

The FDA should not release on a Friday when listed shares/vol is involved.

 

[zdreg]

. All instructions have to be sent to the occ at the same time

The same time doesn't sound right. Requests can be done any time before deadlines.

 

[BlueWaterSailor]

Sometimes the risk isn't always that clear.

That's the point: there's a bunch of unknown risks when you start trading - and you won't learn about them until you've been at it for a while. This is why your risk management has to be damn near perfect from day one: even if you get hurt, you won't get killed. For most, that means doing a ton of single lot trades until you've been at it for a couple of years, and only increasing the size when the total notional exposure on any one trade won't wreck you. That may be too conservative for some... I don't see it that way.

What happened to you was a direct result of trading 50 lots. It's a hell of a price to pay for a lesson of that sort, but just like in law, "ignorance is no excuse." It's a risk I'd never have taken.