IB trashes account - what would TOS do?
- Thread starter lejmorro
- Start date
Guys, thank you, you are right! I hear you. I let my margin ratio get too high.
OK, then what is your maximum margin ratio in your account? 25%? 40%? higher? Presumably whatever it is, it will cover you from an unexpected assignment of say 10 short put contracts of SPY worth about $100K?
Because by my reckoning, if I want to be able to keep within margin and cover the unexpected assignment, I am out of the game because I dont have enough stock/cash.
Of course, the best policy is never to let a short get in the money sufficiently to be assigned. But I've studied the Red Option archive of iron condors over the last 3 years and even Scott Snyder, a conservative trader I think, let a few short spreads go through to expiration in the money.
And if you have to hedge or bail out of your credit spread whenever the underlying approaches the short strike, is it worthwhile putting on the spread in the first place. There are plenty of experienced traders on ET who say NO because the risk/reward is not good enough. I used to be in the YES camp, but with regular multi percent swings up and down in hours, you have to say NO.
Can't you set "liquidate last" on specific contracts? I don't know how it works with spreads but with single contracts you can definitely specify this.
Yes. I mentioned that. And it's easy to set. Go to 'Account.' Right click on far right entry and choose 'set liquidate least.' Just be careful not to choose everything. Leave one option you are willing to buy in - if something bad happens.
That would have solved the entire problem.
And, as has already been agreed, avoiding the dangerous situation in the first place would have been better,
Mark
1) Selling credit spreads is a good strategy, and you can buy insurance.
2) Why not trade European style index options?
3) If you lack cash, then perhaps your portfolio should be smaller. That's a good method for risk reduction.
4) If assignment worries you, find some way to view your portfolio BEFORE the market opens every day. If not possible, then be certain you have liquidate last set up to sell out your long options when an assignment looms on your short options.
Or play safe and give up position when that deep ITM. I don't like that idea, but it is safer.
5) Covering a credit spread when the short option moves ITM or threatens to move ITM is a very good risk management technique. Don't run away from that idea. It's not necessary to do that, but it is a reasonable approach. Preventing big losses is THE path to long-term success.
6) You must trade <i>your</i> comfort zone, but I believe selling credit spreads and buying iron condors is a very viable strategy. Less so when markets are very volatile, so cut size or buy insurance, or both.
Mark
I am not into options. But I saw a good graphic a couple years ago that showed that for FUTURES, that 30% (normal, not intraday) of your trading capital was the best balance between risk and reward. or put another way, each dollar of your account controls $7 of an instrument. Not more, not less.
Of course, seeking to be both long and short, and well diversified across categories strongly increases your staying power. You can use a small amount of the excess capital for some gold, and/or things to make yourself dollar hedged. Also, hold some TBills wouldn't hurt.
lejmorro,
I am sorry to hear your tale of woe. Been there, done that.
The crash of '87 taught me to respect the use of margin. Maybe it was the subsequent margin calls days later when they figured out whether I still owned all of the stocks I might have owned (10/19 was option expiration and some brokers had no clue until well into the following week what assignments were). I certainly owned all of the next month's naked put stocks - they just hadn't served them to me yet. I still go out on margin but I sure do keep a tight leash on it.
I hope you have better results at TOS than you did at IB.
Spin
I am sorry to hear your tale of woe. Been there, done that.
The crash of '87 taught me to respect the use of margin. Maybe it was the subsequent margin calls days later when they figured out whether I still owned all of the stocks I might have owned (10/19 was option expiration and some brokers had no clue until well into the following week what assignments were). I certainly owned all of the next month's naked put stocks - they just hadn't served them to me yet. I still go out on margin but I sure do keep a tight leash on it.
I hope you have better results at TOS than you did at IB.
Spin
I disagree. I once had an account at Brown & Co. I was naked some index option puts for about 1 week. I was WAY OVER my margin. I had a $20k acct, and the margin was something like $40k. They let the trade go when they saw it was a profitable trade. However, it did eventually go against me near expiration....but I PULLED THE TRIGGER to get out, NOT THEM.
Bottomline: it's the brokerage that makes the difference.
IB did the same thing to me a little while ago. BUT the problem was that before I even decided to do credit spreads; I first phoned IB's customer service and asked what would happen if my short side got assigned; I was told that I had 10 minutes from the open to exercise my long side. So I thought : "Great, I 'll just monitor my positions every morning if I'm ever in a position to get assigned."
So when I woke up one morning to find that I had been assigned; I thought: " No problem I'll just open the exercise window and exercise my long puts" The problem was that the exercise window was no longer where I thought it was. So while I was searching for it (as TWS seems to like closing features that are not used frequently) I also phoned customer service because I still had plenty of time before the open. I got through to customer service and he informed me that even if I exercised my long puts; they wouldn't be acknowledged by IB until the next day........ I then explained to him that was not what the last custmer rep said. He then ignored me and told me that I would start getting auto-liquidated if I didn't start selling something on my own.
So after he informed me that by exercising my long puts I wouldn't get flat; I then saw my only other alternative was to sell my long puts and the assigned stock (taking a much larger loss) THEN the next problem was that TWS wouldn't allow me to sell my Long puts!!!!!!! This was the day that the Dow dropped 700 points in the morning and then bounced back up. My account started getting auto-liquidated and there was nothing I couild do about it!!! UNTIL the market moved back up and my puts were worth a lot less. then I was able to sell my puts! Oh yeah and IB had liquidated my assigned stock at the worst possible price!!!
Needless to say this all happened because I phoned their customer service and got connected to someone who was absolutley clueless about IB's own exercise policy. I called IB's customer service a few times since and there are still some reps saying that IB's exercise is immediate and others saying it is delayed by a day.
So when I woke up one morning to find that I had been assigned; I thought: " No problem I'll just open the exercise window and exercise my long puts" The problem was that the exercise window was no longer where I thought it was. So while I was searching for it (as TWS seems to like closing features that are not used frequently) I also phoned customer service because I still had plenty of time before the open. I got through to customer service and he informed me that even if I exercised my long puts; they wouldn't be acknowledged by IB until the next day........ I then explained to him that was not what the last custmer rep said. He then ignored me and told me that I would start getting auto-liquidated if I didn't start selling something on my own.
So after he informed me that by exercising my long puts I wouldn't get flat; I then saw my only other alternative was to sell my long puts and the assigned stock (taking a much larger loss) THEN the next problem was that TWS wouldn't allow me to sell my Long puts!!!!!!! This was the day that the Dow dropped 700 points in the morning and then bounced back up. My account started getting auto-liquidated and there was nothing I couild do about it!!! UNTIL the market moved back up and my puts were worth a lot less. then I was able to sell my puts! Oh yeah and IB had liquidated my assigned stock at the worst possible price!!!
Needless to say this all happened because I phoned their customer service and got connected to someone who was absolutley clueless about IB's own exercise policy. I called IB's customer service a few times since and there are still some reps saying that IB's exercise is immediate and others saying it is delayed by a day.