Liquidation with no Margin
- Thread starter Evanp90
- Start date
Thank you I appreciate the time you took to read my post. Finra is a good idea. I believe I answered your questions aside from the cash in the money line Sma. And yes there was money in there but very little.
https://www.benzinga.com/10/10/535229/spx-“carpet-bomb”-due-to-vix-settlement
Always remember margin is not intended to protect the customer. It's intended to protect the firm from an unsecured debit in the customer's account.
Always remember margin is not intended to protect the customer. It's intended to protect the firm from an unsecured debit in the customer's account.
I've always had horrible customer service with IB and simply the worst broker I've ever had. How they are in business defies logic.
In general IB is reliable and their fees are very low. Over the last couple of years I can only remember once where I had an issue connecting and executing trades. I also like the ability to use their API and create my own front-end.
IB is notorious when it comes to liquidating VIX-related positions, underlying and options. I have had liquidations forced on me even though my underlying positions FULLY HEDGED were profitable, making money basically cutting my profit short. I talked about this many times here. The rationale that they gave is that they stress the positions assuming a 30% meltdown of the market and if your positions won't make it with that kind of meltdown, they force you to close them. But in your case this doesn't even apply since you are long VIX calls so if there is a market meltdown, you will actually be making an enormous profit and posing no risk to IB whatsoever. All those talk about "risk management" is just nothing but BS, utter BS!!
Why does IB do this? My take, it's because IB wants to make available those VIX instruments for shorters for them to make money. There is a huge demand by shorters for these VIX instruments and IB charges margin interest, HUGE margin interest in fact on short positions on VIX instruments and that's a very lucrative business for IB. And that's why they don't allow you to hold onto your positions for too long so they can make higher turnover of shares available to more people to short and for them to earn higher interest revenue. Usually these VIX instruments are extremely hard to borrow and yet IB always seems to have them available for shorting. Have you ever wondered why? Now you know why. It's because IB force liquidates its clients' positions using these ridiculous stress scenarios to make them available for others in order for them to make money.
I would love to hear @def's spin on this one. But for me, this is one of the reasons why I stopped trading, at least VIX instruments with IB. Once you've traded with IB for a long time, you will discover IB has all kinds of these "strategies" nickel and dime its clients and when you ask them, they have all kinds of "official explanations" that just sound so nice on the surface but are really utter bullshit and serve no purpose except to justify them skinning you. And when all the charges are counted and tallied at the end of the day, you will find they are not that "discount" and the cost of trading with them is actually lot higher than other brokers in terms of lost profit. The VIX positions that they force liquidated on me, I lost close to $40K of potential profit if I had been able to hold the position until when I wanted to close them. And I am not even counting all of the higher commissions that they charged me due to their dubious routing practices.
I believe you'd get the behavior you expect and lower margin requirements if you switch your account to Reg T from PM.
The answer IBKR didn't give you as explicitly as they should have is that it is IBKR's intention to prevent you from holding these positions despite your correct assertion that there's no plausible way for you account to go negative and put them at risk. I suspect you're wrong that a spread is "paid in full" but not entirely sure.
IBKR's logic doesn't make sense in this local instance given your positions don't put them at risk. But their PM net delta margin formula does have some logic in the more general case.
Net delta margining is a strange beast, especially after they started emphasizing volatility stress testing in the wake of GME. The volatility stress testing presumably makes VIX options especially sensitive and liable to have strange margining. I wish they would lay out their rules instead of forcing customers to back into understanding by observing behavior.
What I've seen is:
Selling a covered call against a long position can increase the margin requirement in a portfolio margin account.
You can have a short call and do a buy write so you end up long the underlying and short two calls against it and have a reduction in margin.
If you really want to have fun, you can go short a reckless amount of AMC/GME/TSLA puts and calls without much margin impact until you hit concentration margin if you get (and maintain) your ratios.
None of the above make sense in a traditional margin context. And I think it would be better for everyone if they used a hybrid approach of Reg T and the net delta margin formulas depending on context to sidestep these edge cases like spreads. From my cheap seats, they've created a situation that underemphasizes gap risk -- which is what I'd be concerned about as a lender because that's how an account goes below zero -- in order to keep risk steady when markets are open.
The answer IBKR didn't give you as explicitly as they should have is that it is IBKR's intention to prevent you from holding these positions despite your correct assertion that there's no plausible way for you account to go negative and put them at risk. I suspect you're wrong that a spread is "paid in full" but not entirely sure.
IBKR's logic doesn't make sense in this local instance given your positions don't put them at risk. But their PM net delta margin formula does have some logic in the more general case.
Net delta margining is a strange beast, especially after they started emphasizing volatility stress testing in the wake of GME. The volatility stress testing presumably makes VIX options especially sensitive and liable to have strange margining. I wish they would lay out their rules instead of forcing customers to back into understanding by observing behavior.
What I've seen is:
Selling a covered call against a long position can increase the margin requirement in a portfolio margin account.
You can have a short call and do a buy write so you end up long the underlying and short two calls against it and have a reduction in margin.
If you really want to have fun, you can go short a reckless amount of AMC/GME/TSLA puts and calls without much margin impact until you hit concentration margin if you get (and maintain) your ratios.
None of the above make sense in a traditional margin context. And I think it would be better for everyone if they used a hybrid approach of Reg T and the net delta margin formulas depending on context to sidestep these edge cases like spreads. From my cheap seats, they've created a situation that underemphasizes gap risk -- which is what I'd be concerned about as a lender because that's how an account goes below zero -- in order to keep risk steady when markets are open.