Does IB take responsibility? An amazing story
- Thread starter Option Trader
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Option Trader,
Without knowing more about your situation, I can only give you some generalities. pardon me if you did contact IB before your problem occurred.
All brokerage firms must "charge" at least the minimum margin requirement on short options and other strategies. Brokerage firms can charge more than this if they want to.
A few years ago, people contacted IB about better margin requirements on iron condors. Although it took awhile, IB did implement improved margin requirements for this strategy.
The only points are that any customer needs to be careful about being close to margin limits. You need to manage this. In addition, if you noticed that there was a problem with IB's margin algorithm, you need to let them know as soon as possible before there is a problem (in this case your boxes were liquidated).
Box spreads do have risk and are not risk free. Do yourself a favor and get a copy of Charles Cottle's Coulda Woulda Shoulda. Cottle gives a great story about how savvy traders were paying more than the box for box spreads and arbing the position for an edge.
http://www.riskdoctor.com/
Without knowing more about your situation, I can only give you some generalities. pardon me if you did contact IB before your problem occurred.
All brokerage firms must "charge" at least the minimum margin requirement on short options and other strategies. Brokerage firms can charge more than this if they want to.
A few years ago, people contacted IB about better margin requirements on iron condors. Although it took awhile, IB did implement improved margin requirements for this strategy.
The only points are that any customer needs to be careful about being close to margin limits. You need to manage this. In addition, if you noticed that there was a problem with IB's margin algorithm, you need to let them know as soon as possible before there is a problem (in this case your boxes were liquidated).
Box spreads do have risk and are not risk free. Do yourself a favor and get a copy of Charles Cottle's Coulda Woulda Shoulda. Cottle gives a great story about how savvy traders were paying more than the box for box spreads and arbing the position for an edge.
http://www.riskdoctor.com/
No one said the customer is "entitled to a phone call" it's just common sense.
Also, as I understand it there is no formula for liquidation. They just sell positions without regard to the disruption of your hedged positions.
Most customers would prefer a "discriminatory" selling of their securities providing a result that gives financial "favoritism."
It's astounding that you prefer willy nilly liquidation of your account.
Don
P.S. "Willy nilly" is an appropriate description when the liquidation "formula" uses an arbitrary algorithm. I forget what algorithm is used, but it might be alphabetical order or some other nonsensical method. I pray I am wrong about this and will happily apologize if I am.
Thank you TrueRange:
Actually, the issue here was not margining, as it was properly margined by IB (i.e. box spreads having no margin requirements), rather an absolute size restriction IB imposes.
Several people didn't notice that I qualified box spreads as "theoretically risk free". The purpose of the trade was the $120 or so of interest coming into the account each day. As I understand it, the risks are: a) the fact the shorts are in-the-money means their deltas are greater as the stock price nears the strike price. b) managing with assignments in certain cases. If you saw anything else, please share.
Actually, the issue here was not margining, as it was properly margined by IB (i.e. box spreads having no margin requirements), rather an absolute size restriction IB imposes.
Several people didn't notice that I qualified box spreads as "theoretically risk free". The purpose of the trade was the $120 or so of interest coming into the account each day. As I understand it, the risks are: a) the fact the shorts are in-the-money means their deltas are greater as the stock price nears the strike price. b) managing with assignments in certain cases. If you saw anything else, please share.
Actually, directed to issue Freehouse mentioned.
My advice is not to threaten IB. If you don't get what you want, file an arbitration claim. You have a decent chance in arbitration and for the amount of money involved my bet is they settle
To say they made 11K on the deal proves your logic is significantly flawed.
It's been suggested you find another broker or don't run too close to the margin line next time. IB reps have bent over backwards here to explain things to you, albeit without obligation to do so. I don't see how you are doing the viewing trader community any service by continuing this "dead horse" dialogue. You obviously have a personal issue (of very limited scope) with their action that should be dealt with individually and privately. I say it's your issue because despite all the writing, there doesn't appear to be anyone else coming forward to say IB is way off on box liquidations...and we've got some pretty savvy pups that troll these boards.
It's been suggested you find another broker or don't run too close to the margin line next time. IB reps have bent over backwards here to explain things to you, albeit without obligation to do so. I don't see how you are doing the viewing trader community any service by continuing this "dead horse" dialogue. You obviously have a personal issue (of very limited scope) with their action that should be dealt with individually and privately. I say it's your issue because despite all the writing, there doesn't appear to be anyone else coming forward to say IB is way off on box liquidations...and we've got some pretty savvy pups that troll these boards.
k, what about suggesting some way to improve ib's liquidation policies and algorithms instead of bitching back and forth with resentment: I don't think ib personnel is really drawn to this thread with a 'trial' going on and 'lawyers' on each side not willing to compromise and make constructive criticisms...
Reply to ktm:
1) The loss of 11k is clear, and occurred from the cost of entering and exiting (liquidated at market) the position, plus cost of roundtrip cmsns.
2) IB didn't deny the smart route had most probably routed the trades to Timber Hill. I had also mentioned we were going to verify this to be 100% this is was happened.
3) Are you afraid IB may raise your commission rates if they cover the damages?
4) IB received a two section e-mail, point by point, and hardly related to the points.
1) The loss of 11k is clear, and occurred from the cost of entering and exiting (liquidated at market) the position, plus cost of roundtrip cmsns.
2) IB didn't deny the smart route had most probably routed the trades to Timber Hill. I had also mentioned we were going to verify this to be 100% this is was happened.
3) Are you afraid IB may raise your commission rates if they cover the damages?
4) IB received a two section e-mail, point by point, and hardly related to the points.
def
Sponsor
If you are going to paraphrase my comments, please do so accurately...
I never said the orders were PROBABLY routed to any specific firm or venue. All I said was that they would have been routed via SMART in an attempt to obtain the best execution possible. I have no idea who was on the other side of your trade and frankly would suspect numerous counterparties.
A key point that continues to be neglected is that all the information is available on the account window of the TWS and is updated live. If you're pushing our margin limits, the information is readily available on the TWS. As IBj states, we may consider additional alerts down the line but all they would do is point you to the information which is right in front of you.
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