Covered Call: the stock itself got rejected!

X

xtanda

Hi all,
I just got the weirdest call from my option broker this afternoon.

I do covered call among other things. Currently I have written December Call for OZL. As you know, OZL has suspended themselves from trading and now the stock and option is not moving (non-liquid)

The broker said that I need to provide cash margin by tomorrow because the clearing house has rejected OZL stock as the collateral for OZL option !!!

Is this for real or it's just the broker playing me around?

The purpose of 'margin' as collateral is to make sure that I am able to provide/sell the stock at strike price. If I have the 100% collateral of the stock, why do I need to provide another cash collateral ?

Anybody got previous experience about this ?
Thanks
 
If you don't post more margin on the option, WTF do they propose to do? The options are not trading, right? Never heard such thing ... but surely others are more knowledgeable on the matter ...
 
that's exactly my argument. I thought if the stock is being suspended, status quo will take charge.

It's really strange policy by ACH.

I just received the 'release of securities from option cover' letter, so the broker was not playing around. it's real...
 
Quote from xtanda:

Hi all,
I just got the weirdest call from my option broker this afternoon.

I do covered call among other things. Currently I have written December Call for OZL. As you know, OZL has suspended themselves from trading and now the stock and option is not moving (non-liquid)

The broker said that I need to provide cash margin by tomorrow because the clearing house has rejected OZL stock as the collateral for OZL option !!!

Is this for real or it's just the broker playing me around?

The purpose of 'margin' as collateral is to make sure that I am able to provide/sell the stock at strike price. If I have the 100% collateral of the stock, why do I need to provide another cash collateral ?

Anybody got previous experience about this ?
Thanks
More...

1) This feels wrong. Who is the broker?

2) Get on the phone RIGHT NOW. Call the OCC (optionsclearing.org to find phone number). Ask if this is possible. If OCC is on your side, get them to send you an emial so you have written proof the broker is incorrect.

If phone contact not possible, send email to options@theocc.com. Help will come to late, but you can use the email to go to arbitration with broker.

3) Then get on phone with broker and ask to whom to forward email to prevent them from doing anything rash in your account

4) You don't have much time, so good luck.

5) Your broker's computer has gone bonkers, IMHO

Mark
http://blog.mdwoptions.com/options_for_rookies/
 
Sorry, I should be more explanatory for worldwide audience. My apology.

The stock OZL is OZ Minerals and listed in Australian Stock Exchange.
ACH is Australian Clearing House.
And covered called is a.k.a Buy Write.

The broker at the moment seems not at fault (it's CommSec) because I did receive the 'release' leter from ACH. (Is it possible that the broker itself who initiate the release ?)

If this matter is a more general affair, I'll be talking to radio talk back, media, blog, whatever... unfortunately it affected only a very specific niche market: Australian Covered Call trader who does OZL

It's really strange to reject the stock that being optioned itself... I'll update the progress if any...
Thanks
 
Quote from xtanda:



It's really strange to reject the stock that being optioned itself.
Thanks
More...

It's bizarre beyond description.

The stock may not be trading, but your broker can still deliver the shares, if you are assigned an exercise notice.

Mark
 
It appear it's some kind of 'standard operating procedure'. (see the content of the letter I demand from the broker) Gee, I guess I have never across a covered call that being suspended before.

This is one of those 'silly' rule that need to be removed. There is no implication whatsoever for ACH if the stock itself have been lodged for collateral. As for cash, that's more risky than the security as if the stock goes up 200% the next day, the writer need to come up with 100% of money - while if stock collateral is present, nothing else need to be done.

Anyway, the broker has agreed to pay for 2/3 the cash collateral, I pay a third... weird agreement.. I know...


DERIVATIVES – EQUITY AND INDEX OPTIONS
COLLATERAL IMPLICATIONS FOR SUSPENSION OF OZ MINERALS LIMITED
ACH is central counterparty to all ASX market transactions and aspires to the highest
standards of counterparty risk management. Moreover, ACH holds a CS license and is
subject to the RBA’s Financial Stability Standards. Central to its compliance with both its
License obligations and the Standards is the obligation to manage the counterparty risks
arising from its role as central counterparty. One of ACH’s risk control measures is the
collateralisation of derivatives positions through calling margin on a daily basis. ACH
continually monitors and assesses the value of collateral lodged to ensure it continues to
provide adequate and liquid cover.
For the above reasons, ACH may from time to time require the removal of collateral
securities lodged with ACH where these securities are subject to a corporate action
or event. This is done in accordance with standard procedures which apply when
any corporate action or event has collateral implications for ACH.
On 1 December 2008, OZ Minerals Limited (OZL) announced that the Company will be
suspended from quotation prior to the commencement of trading on Tuesday, 2 December
2008.
ACH and ASX Participants are advised that all OZL shares lodged as collateral with ACH
must be removed before or by the close of business, Wednesday, 3 December 2008. Any
collateral held after that date will be removed by ACH.
 
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