First 10 minutes situation

raf_bcn · Jul 19, 2017

Hi
The value of an american style option has to be positive.
I would like to explain a situation that has happened a few times.
In a multyleg strategy my sold put become ITM and I am early assigned, somy position is bought in stocks. Then the margin requirement is higher than my available cash so I have to remake the position.So I sell stocks and sell another otm put and my position remains as the begining. To do that I have 10 minuts, from 9.30 to 9.40 EST ,
because if not the broker will autoliquidate my positions.

I use to make a combo order, selling 100 stocks and selling 1 put. It seems normal that the price of the combo would be higher than the price of the stock, since i am selling the stock and a put, but it's not like that, always I have to give up some cents.
So for example if Spy is trading at 240, i sell the spy and the put for 238,97 otherwise my order is not filled.
Yes I am selling a free put.

It seems the broker know i am in a hurry to get my order filled and take advantage of that. Is that posible, a broker would do a thing like that?
But do not want to accuse anyone. Maybe it is because at that time the market makers still do not know what prices to quote for the puts.
I would like to know opinions about that please.

thanks

ironchef · Jul 19, 2017

raf_bcn said:
It seems the broker know i am in a hurry to get my order filled and take advantage of that. Is that posible, a broker would do a thing like that?
But do not want to accuse anyone. Maybe it is because at that time the market makers still do not know what prices to quote for the puts.
I would like to know opinions about that please.

thanks

Not your broker but the market makers and especially when there are no other traders willing to take your position.

Your broker just takes orders. And I believe it is completely legal. Happened to me often when no one was willing to take the other side.

raf_bcn · Jul 28, 2017

Hi
Thank you for your comment @ironchef
My broker is a also a market maker.
An option with 30 dte can not worth nothing. They force me to sell for 0 and after 20 minutes that option is 0,10 and after an hour is 0,30They buy it for 0 and sell it for 0,30 which is the logical price. If the broker instead of giving 10 minutes would give 1 or 2 hours, probably I could sell the option with a fair price. My position has no risk.
Please IB let me sell with a fair value.

What I would like to know is if the broker keeps my order only for him.

Robert Morse said:
You need to make sure you are using a broker where your option spreads are not held in an option dark pool so their is price discovery to all participates that monitor the COBs.

If Robert Morse says that could happen is because some brokers do. And if they know you only have 10 minutes to make the trade, they take advantatge.
Is one of those things that the theory doesn 't explain and has to be discovered with the real market.

ironchef · Jul 28, 2017

Maybe in that situation you are better off close the positions separately. Quite often, with thinly traded options, I found it cheaper to roll out/up/down with two separate trades than a combination even though combination saved commissions, I could not get the fill with the price I wanted.

beerntrading · Jul 28, 2017

What broker is this? When I've got assigned on the short side of a spread, it always seems more like a friendly reminder than a margin call. They're not stupid, they know your loss is limited with the long side of your spread.

I usually come out ahead on these because I can make a price play on the close.

And I usually do separate orders. I'm sure market makers recognize this in the opening minutes and that you're against a wall. No incentive to meet you inside the spread. Plus you'll lose out on any algo that only offers the option and looks to pick off orders inside the spread.

raf_bcn · Jul 29, 2017

Hi

Yes @ironchef, I tried to close the position separetly but it doesn't work for me because if i do it the position will be umbalanced and the margin requirement is higher.
So I have to do it at the same time with a combo order.

Thank you @beerntrading. The broker is Interactive Brokers. And as you said although the risk is absoluyely limited they give 10 minutes to resolve the situation. In fact I have been autoliquidated a coupple of times and the resulting position is difficult to understand and
with nothing to do with the original position.

And more, IB doesn't have a very good platform to graphicate the options and half of the times their profile graph doesn't load correctly, so I have to graph the new position in thinkorswim, what takes some time, which wouldn't be a problem unless that the new position is not delta neutral and could loose money if the price moves.

beerntrading said:
I'm sure market makers recognize this in the opening minutes

Agree, and one solution would be to give some more time to resolve the margin problem . But I am not saying they are doing something wrong but definitely doesn't help the costumer.
I think with a portfolio margin account this would be different.
But for now this could be the reason to go to another Broker. Any advice, what's yours?

thanks.