IB surprise email: UCO short had been forced to bought-in!

GloriaBrown said:
Does anyone have forced buy-in experience? Look like rarely happens.
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Yes. OP got a recall, which gives you no warning and is relatively rare. More typical for a tight borrow situation would be a warning that the located shares have not yet been delivered the day before the deadline and that you would be subject to a buy-in the next morning if the locate failed to deliver shares. I got a call like this for one short position today. Then you can cover yourself that afternoon and avoid the risk or take your chances on a buy-in the next morning. IB will send you a warning message in TWS if they can, but a recall is out of their hands.

I will add that the shorter T+2 settlement schedule as of last month increases the risk to short selling since there is less time for the locate to deliver the shares (or for your broker to make alternative arrangements if their original borrowing source fell through).
 
if you do it by selling "rich" puts you avoid SHO violations. If you do it with boxes or just shorting call you run the risk of a SHO violation. Revisit the SEC link I put up in an earlier post. I note that the customer was named as well as the brokerage firm. The firm took the hit and the case against the customer was dismissed.
What I was told today was part of the basis for the dismissal was based on the legal fees incurred by the customer already exceeded the possible fine. I was told that so I'm quoting hearsay. I was at oX when the settlement occurred - gone in 2015 and the customer dismissal occurred in 2016.
 
Sig said:
This has been discussed ad nauseum. Bottom line is your simplistic view is simply incorrect.
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What's the quick rundown on this view being incorrect? Any long ETF which needs to hedge through buying and rolling of futures in a contango drops towards zero over the long term...
 
JackRab said:
What's the quick rundown on this view being incorrect? Any long ETF which needs to hedge through buying and rolling of futures in a contango drops towards zero over the long term...
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I was specifically referring to Shadetree42's assertion that there is "decay" inherent in levered ETFs. The primary reason a 2x fund isn't at twice the level of the underlying index after a period of more than one day is the simple fact that they track 2x the daily percentage return of the index. This makes them highly path dependent, it's just the pure math of the daily percentage return. For example if you have $100 in a regular 1x fund and a 2x fund tracking an index that starts at 100 and goes up by 10% the 2x fund is at $120 and the 1x fund is at $110. If the index goes back down to 100, that's a 9.1% drop. The 2x fund drops 18.2% to $98.16 while the 1x fund is back at $100. Nothing "decayed" it's just math. On the other hand, if the index goes from $100 to $110 on day 1 then on day 2 goes to $120, the 2x fund is goes up 18.2% on day 2, to 1.182*120=$141.84. The 1x fund is at $120. The 2x fund in this case apparently "anti-decayed", since it's up more than 2x the index. Again though it's just math.
Do transaction costs impact leveraged ETF, sure? However they are a very second order effect to the path dependency the daily percentage return causes. In fact in many cases the fund sets up derivatives that swap with their inverse leveraged funds or buy a tracking derivative from an investment bank so there is minimal or no rolling of actual futures going on at all, all in the prospectus.
 
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