How does IB handle early exercise of options

huh · Jul 1, 2008

I'm mostly use to trading the RUT or SPX indexes where you don't have to worry about early exercise but I went ahead and put on a condor on spy. Basically I'm short about 15 positions of the 137/136 put spread. So if I get all 15 137 puts exercised and I definitely don't have $13700*15 = $205,500 in cash.....so does that mean IB will force the sale of the 1500 shares of spy at the open price automatically or will I at least have the end of the day to close out the position on my own?

I'm a little hazy on this since I have no potential downside since there's a protective put at 136 on the 1500 shares so I can't lose more money, but I can see how IB wouldn't want to float me cash in my account either, but I'm hoping to at least get till the end of the trading day to get the shares sold....

Anybody have experience with this?

freehouse · Jul 1, 2008

Quote from huh:

I'm mostly use to trading the RUT or SPX indexes where you don't have to worry about early exercise but I went ahead and put on a condor on spy. Basically I'm short about 15 positions of the 137/136 put spread. So if I get all 15 137 puts exercised and I definitely don't have $13700*15 = $205,500 in cash.....so does that mean IB will force the sale of the 1500 shares of spy at the open price automatically or will I at least have the end of the day to close out the position on my own?

I'm a little hazy on this since I have no potential downside since there's a protective put at 136 on the 1500 shares so I can't lose more money, but I can see how IB wouldn't want to float me cash in my account either, but I'm hoping to at least get till the end of the trading day to get the shares sold....

Anybody have experience with this?

If you do not have the margin to carry the position, you may want to consider unwinding your 137/136 put spread now. When IB's margin program kicks in, there is nothing you can do.

cvds16 · Jul 1, 2008

the above answer is not totally true, it depends on numerous things
first of all what month are you talking ?
dividends could change the picture, if I'm not mistaken, spy gives dividends one day before expiration, so a mm might prefer to wait for that.

huh · Jul 2, 2008

Quote from cvds16:

the above answer is not totally true, it depends on numerous things
first of all what month are you talking ?
dividends could change the picture, if I'm not mistaken, spy gives dividends one day before expiration, so a mm might prefer to wait for that.

I've got the puts that expire in July. I'm trying to keep the position open for another 2 weeks as a hedge since I sold a couple Aug 137 calls so am hoping to let time value go down on the 137's....and incase the market rallies then I can close the 137/136 July puts for a big profit. Of course if I get exercised early...ie by July 11th then that kinda throws a wrench in the idea.

Oh well hopefully we get some sort of a dead cat bounce or something so the MM's might wait to start exercising till the last week of the cycle....but if we head significantly lower then I may just close out as freehouse suggested.