Can a broker restrict you from closing positions?
- Thread starter bangorsky
- Start date
Thanks, gang. My broker was so adamant, for a while there I was starting to believe I was wrong.
sputdr, yes, I did lose a chunk of money on the deal. I got assigned 2000 shares, and the stock's been down since. I've lost ~$900 which isn't the end of the world, but I refuse to lose a dime for something that's not my fault.
tomcole, I like your style & I think I'm going to do exactly what you said. First I'm going to call them and give them one more chance to fix things. But then it's straight to the courthouse. Y'all might want to short Brownco stock (ET) coz I'm takin em DOWN babay. Well, not really, but ya never know.
sputdr, yes, I did lose a chunk of money on the deal. I got assigned 2000 shares, and the stock's been down since. I've lost ~$900 which isn't the end of the world, but I refuse to lose a dime for something that's not my fault.
tomcole, I like your style & I think I'm going to do exactly what you said. First I'm going to call them and give them one more chance to fix things. But then it's straight to the courthouse. Y'all might want to short Brownco stock (ET) coz I'm takin em DOWN babay. Well, not really, but ya never know.
If you wrote naked puts then I'm sorry bangorsky I have to disagree, the broker is 100% right.
Cover the margin call and get the restriction lifted then work on covering your position.
Now this is going to make your head spin because it's not a question of semantics but rather question of knowing the nebulous rules of brokerage accounting. This is also where it pays to know the rules. Options are a completely different animal and do not come under the same margin rules as stocks. I've posted the rules for selling naked puts below for illustrative purposes.
Naked Puts:
Initial Margin Requirements:
Greater of these 3 values:
1. Premium + (20% of the Underlying Market Value) - (OTM Value)
2. Premium + (10% of the Strike Price x Multiplier x Contracts)
3. Premium + ($250/contract)
Maintenance Margin requirements:
Greater of these 3 values:
1. Premium + (20% of the Underlying Market Value) - (OTM Value)
2. Premium + (10% of the Strike Price x Multiplier x Contracts)
3. Premium + ($250/contract)
(OTM = Out of the Money)
I'll try to make this as simple as possible. In this case writing a naked put is similar to selling stock short so you need to think in reverse here.
So like selling stock short in essence what you've done is sold someone else's calls that the broker has borrowed and CREDITED (money in) the proceeds to your account. In the meantime, you get a margin call restricting the account. NO money can be DEBITED (money out) from the account until the margin call is met. Now you've tied the brokers hands. I know buying to cover is often interpreted from a customers standpoint as selling the position, but from an accounting standpoint it is actually the opposite. You want the broker to buy those borrowed calls (your puts) and DEBIT (money out) your account.
The margin clerks don't care what you hold or how you hold it. They're only interested in debits and credits. If an account is restricted then no debits can take place in the account until the margin call is met by a credit.
Now cough up the dough and get the restriction lifted, and don't try to pay for it with a check written on your brokerage account. (oh, I've seen those checks)
My advice to you is to work with a broker who is a registered options principal. For your own protection it should be the first question you ask of any broker with whom you plan to transact options.
If you need more help start here:
http://www.nasd.com/web/idcplg?IdcService=SS_GET_PAGE&ssDocName=NASDW_005973
It's your prerogative to threaten arbitration but i'll tell you right now this would be a tough one to win.
Trendreaction
Series 7, 55, 63, 65
Series 24 General Principal
Series 4 Option Principal
Trading Floor Operations Manager
NASD Arbitrator
FredBloggs
Guest
sorry - i dont get that.
trading derivatives is exempt from the down tick rule as you are not shorting the stock (borrowing it from someone) you are just trading a derivative.
its getting late here in the uk, and im a bit tiered, but if the guy shorted, he has premium in his account. surely that should cover any margin requirement for the option (assuming vol hasnt done something clever)
trading derivatives is exempt from the down tick rule as you are not shorting the stock (borrowing it from someone) you are just trading a derivative.
its getting late here in the uk, and im a bit tiered, but if the guy shorted, he has premium in his account. surely that should cover any margin requirement for the option (assuming vol hasnt done something clever)
Quote from bangorsky:
Haha, yeah I was just saying 'X' to be generic. The actual stock is APOL (and due to the fact that I couldn't buy back my puts, I'm stuck with 2000 shares of this turkey).
But MTE you're right... the 1st thing they would do is liquidate my positions, which is what I was trying to do on Friday! I dunno... I guess this is what I get for going with a discount broker (Brownco).
BrownCo reps are a bunch of morons - trust me
who did you talk with there?
Unreal !!!
you're worried about $900 and you're selling 20 puts short????!
Trust me you are not going to lose 900 next time- it will be 9000 !!
I'm glad guys like you are back in the market-- it's like olde times again! Market needs more fish !
:eek: :eek:
p.s. tomorrow APOL has a shareholder's meeting - did you know that ?
Dont bother calling. You already know their position. As a broker they have a fiduciary responsibility to protect you, so anything that violates that is a no-no. Send the registered letter.
Trend is absolutely wrong. Tell them you intend to go to trial, ask for discovery on how many other accounts this happened to, and contact the others to let them know they were screwed.
You'll run their legal bill into the tens of thousands easily.
Trend is absolutely wrong. Tell them you intend to go to trial, ask for discovery on how many other accounts this happened to, and contact the others to let them know they were screwed.
You'll run their legal bill into the tens of thousands easily.
Oh I believe you on that, iceman1. I talked to someone named Sterling. This person did not seem to be at all familiar with options trading. Twice I requested to be forwarded to an options specialist, but they couldn't even do that.
TrendReaction, thanks for the informative post. Lotta good info in there. But I still must disagree with you on the following statement:
In my experience, the margin clerks are only after one thing: cash. Reduce everything to cash. That's the quickest & most efficient way to stave off further losses/liability due to market swings. So I still have to agree with what MTE said:
I think I'm just dealing with an inexperienced/incompetent broker who does not know how to liquidate options properly. The safest thing to do in any situation is to liquidate all marginable positions and return to cash-only. I'm sure my broker understands this but probably got confused by the all the big words.
Haha... now that sounds fun. At this point, I don't really care about how much it'll cost me. Revenge sounds sweeter.