no. This was PA only. At the firm, you had to cover those options even if they were massively expected value positive.
True about the margin. Return/Margin isn’t that good. But that is a separate consideration.
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Biogen halted, options expiring today.
- Thread starter FSU
- Start date
no. This was PA only. At the firm, you had to cover those options even if they were massively expected value positive.
True about the margin. Return/Margin isn’t that good. But that is a separate consideration.
What is PA?no. This was PA only. At the firm, you had to cover those options even if they were massively expected value positive.
True about the margin. Return/Margin isn’t that good. But that is a separate consideration.
Thanks. I thought it was Pennsylvania, being in the news and all.Personal account
I did not read all the previous posts but this is the type of risk people like me are most afraid of. This is a - "when an ARB isn't an ARB".
This is why I typically will not do too much of any one security (keeping the notional value below a certain % of my capital as I have previously explained on ET). "Expiry" risk is REAL. In my experience the only companies that have this risk typically involve "FDA" type risk or companies on the verge of bankruptcy (also long term halts). Why is this? Because the FDA will make announcements whenever - so it can happen on a Friday. Whereas most companies do not release material things Friday after the close (real expiry risk occurs after 5pm). In this case - its like "Friday after the close" because BIIB never opened once it was halted, however it looks like the news was released around 3 PM - so if you are on top of these things then you would have plenty of time to make a decision on what to do even though the stock doesn't re-open. There were plenty of stories predicting what would happen etc. But can you imagine if the news comes out at 5:15 or 5:30. ouch! So for the last 20+ years I have always tried to take that type of risk off my books for these FDA type scenarios.
Having said this - a similar thing happened to me in 2017 (I screwed up). Even though I knew of the risk - I missed a position that had such risk. On October 20th (regular expiry) I was long shares in DBVT (I didn't know it was Pharma company because of its name: DBV Technologies) so I have a conversion position on. Long stock (I believe it closed at $48 ish at 4 pm), short $40 calls and long $40 puts. 99% + of the time - no issue - calls get exercised and I'm flat on Monday. Nope! Turns out the company is Pharma and had a peanut allergy patch waiting for approval by the FDA. Here is the problem. Stock get halted close to 5pm (if I recall) - then the news (FDA rejects the patch)- then the stock doesn't start trading till a little later and was down 60% + (if a recall) and it was too late for me to exercise the puts. Called IB and there was nothing they could do. I was still hoping that the investors that were long the $40 calls would also get stuck but somehow they were able to "lapse" their options. Now - if the news was released at 4:15 or 4:45. No problem. I just exercise the $40 puts.
Perhaps things are different at IB today (maybe you have some more time) but do not think that your deadline to exercise options is the same as the PRO's. I do not believe it is 5:30 for everyone. I recall reviewing the OCC rules and there doesn't appear to be an official time. Regular customers have different deadlines (ie broker initiated deadlines).
So because of the "risk rules" I had in place - my loss wasn't too bad but things can happen and do happen more than people think. VTL is a stock that comes to mind.
People on ET often complain about margin -but when these scenarios happen - there isn't enough margin to protect brokers. You could easily have margin requirements close to zero for these types of positions (spreads/conversions) that could easily wipe out accounts!
Be careful.........
This is why I typically will not do too much of any one security (keeping the notional value below a certain % of my capital as I have previously explained on ET). "Expiry" risk is REAL. In my experience the only companies that have this risk typically involve "FDA" type risk or companies on the verge of bankruptcy (also long term halts). Why is this? Because the FDA will make announcements whenever - so it can happen on a Friday. Whereas most companies do not release material things Friday after the close (real expiry risk occurs after 5pm). In this case - its like "Friday after the close" because BIIB never opened once it was halted, however it looks like the news was released around 3 PM - so if you are on top of these things then you would have plenty of time to make a decision on what to do even though the stock doesn't re-open. There were plenty of stories predicting what would happen etc. But can you imagine if the news comes out at 5:15 or 5:30. ouch! So for the last 20+ years I have always tried to take that type of risk off my books for these FDA type scenarios.
Having said this - a similar thing happened to me in 2017 (I screwed up). Even though I knew of the risk - I missed a position that had such risk. On October 20th (regular expiry) I was long shares in DBVT (I didn't know it was Pharma company because of its name: DBV Technologies) so I have a conversion position on. Long stock (I believe it closed at $48 ish at 4 pm), short $40 calls and long $40 puts. 99% + of the time - no issue - calls get exercised and I'm flat on Monday. Nope! Turns out the company is Pharma and had a peanut allergy patch waiting for approval by the FDA. Here is the problem. Stock get halted close to 5pm (if I recall) - then the news (FDA rejects the patch)- then the stock doesn't start trading till a little later and was down 60% + (if a recall) and it was too late for me to exercise the puts. Called IB and there was nothing they could do. I was still hoping that the investors that were long the $40 calls would also get stuck but somehow they were able to "lapse" their options. Now - if the news was released at 4:15 or 4:45. No problem. I just exercise the $40 puts.
Perhaps things are different at IB today (maybe you have some more time) but do not think that your deadline to exercise options is the same as the PRO's. I do not believe it is 5:30 for everyone. I recall reviewing the OCC rules and there doesn't appear to be an official time. Regular customers have different deadlines (ie broker initiated deadlines).
So because of the "risk rules" I had in place - my loss wasn't too bad but things can happen and do happen more than people think. VTL is a stock that comes to mind.
People on ET often complain about margin -but when these scenarios happen - there isn't enough margin to protect brokers. You could easily have margin requirements close to zero for these types of positions (spreads/conversions) that could easily wipe out accounts!
Be careful.........
I rarely if ever cover the .05 options unless it was vs a spread and the spread is now a big debit and consequently a pure directional bet..I dont like short nickles against long dollars...
Do you auto close your .01-.02 options???
Do you auto close your .01-.02 options???
I did a study on closing all my nickel options vs losing $10/share on a Friday gap. The break even was like every 10 months for an event to happen. I’ve experienced a total of 3 in 13 years.
I rarely if ever cover the .05 options unless it was vs a spread and the spread is now a big debit and consequently a pure directional bet..I dont like short nickles against long dollars...
Do you auto close your .01-.02 options???
I don’t as many of my options don’t trade in pennies.
but I agree with you. I also close options that become almost a pure directional bet.
I got screwed on BIIB for something I thought would never happen. I created a GTC 0 cost butterfly 1-3-2 spread as a reminder to play BIIB back in OCT. Just let the GTC order sat there and did not think it would fill, then on 2 days after BIIB jumped up 100, it got filled. I was just going to let it expire since it was 80 points OTM. I got assigned 300 shares on the short PUT while the 3 protected PUT expired worthless. On MON I lost $7K on the position. From now on , any stock above $20 I’m going to close it out even if it’s way OTM. But not sure I can do it on BIIB if it's halted whole day FRI.
Hope BIIB will bounce back little so I can recoup some of the loss.
Hope BIIB will bounce back little so I can recoup some of the loss.