its horror stories like these that keep me playing in the shallow pond water of stocks only.
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Margin Call on an IB IRA account (Need Suggestions)
- Thread starter developer17
- Start date
Quote from kubilai:
I think you guys are missing the main point by focusing on options mechanics. It's definitely a good idea to use IB's interface to stop exercise if the option is slightly in the money. However, would you stop exercise if GOOG closed at 281? What about 282?
Yes, absolutely I'd stop exercise if I had no plans of actually paying for 1600 shares of GOOG - no matter where is closed on Friday.
The Friday close isn't the only important thing here - the most important thing here is the Monday open. If it opens lower than the strike price of your exercised options, you are in a boatload of trouble. So even if GOOG closed at, for example, 285 on Friday - you'd think you were $5 in the money. But that wouldn't stop GOOG from opening at 275 on Monday morning, leaving you holding the bag.
The point is - OTM options could possibly end up being ITM excersizable options at the last minute - and if you don't want to end up being assigned and taking a chance that the underlying opens lower than your assignment price on Monday - you had better tell the OCC you do not want them to be exercised. If you can't be flat - then give non-exercise instructions. It's the only safe and sure thing to do.
Actually at 281 near close, he'd just sell the options. With "confidence" increased in the effectiveness of his "strategy", he'll keep using it aiming to build the IRA to $10M, and blow out in short order a few more trades down the line. Gamblers always end up that way, nobody has that much luck.
In contrast, a $20k lesson is well worth it if taken to heart. Trying to blame another party involved (IB) or on exact mechanics of execution just prolongs the pain.
Think that's all I have to say about that...
BTW I did lose close to that amount before on one trade by being stupid, so I understand the pain.
In contrast, a $20k lesson is well worth it if taken to heart. Trying to blame another party involved (IB) or on exact mechanics of execution just prolongs the pain.
Think that's all I have to say about that...
BTW I did lose close to that amount before on one trade by being stupid, so I understand the pain.
Quote from kubilai:
Actually at 281 near close, he'd just sell the options.
Of course, if the options are marketable - the best thing to do is sell them and be flat.
All I'm saying is that if you don't want to be assigned on options that "appear" to be OTM - then you had better tell the OCC via your broker. You never know what might happen at the last minute.
Quote from lilduckling:
its horror stories like these that keep me playing in the shallow pond water of stocks only.
Yeah best to stick to plain stocks in a cash account.
Trading futures you could end up taking delivery of
40,000 pounds of frozen pork bellies (cut and trimmed)
if you forget to close out one contract.
There seems to be plenty of blame to spread around. No "rules" were broken, but both parties should have used more common sense. They share responsibility for creating a $450,000 obligation that was backed by only $800.
A negotiated settlement might be the best course.
Regardless, many of us have had near-misses ... or direct hits. This is a sobering reminder of the multi-faceted risks we face while trading. My hats off to those successfully navigating these treacherous waters over the course of many years.
A negotiated settlement might be the best course.
Regardless, many of us have had near-misses ... or direct hits. This is a sobering reminder of the multi-faceted risks we face while trading. My hats off to those successfully navigating these treacherous waters over the course of many years.
Sorry to hear about your mess.
You really need to hire a lawyer as the OP suggested.
I do not believe the broker should have even allowed the initial transaction to occur in an IRA, since trading on margin is not allowed. Now it is a question of negligence and improper supervision of your account. In my opinion, I am not a lawyer, it is the broker's liability.
http://www.greencompany.com/
Use this link, and take all ELITE advice with a grain of salt.
Please keep us posted and Good Luck!
You really need to hire a lawyer as the OP suggested.
I do not believe the broker should have even allowed the initial transaction to occur in an IRA, since trading on margin is not allowed. Now it is a question of negligence and improper supervision of your account. In my opinion, I am not a lawyer, it is the broker's liability.
http://www.greencompany.com/
Use this link, and take all ELITE advice with a grain of salt.
Please keep us posted and Good Luck!
How can you be allocated the shares without putting up any
initial margin?
Surely the OCC would like to see some initial margin?
initial margin?
Surely the OCC would like to see some initial margin?
Quote from Quah:
Well, here is the lesson to learn from this:
If you are holding options that "look" to be out of the money and you want to be absolutely certain you are not assigned if they end up being in the money come Saturday morning - you MUST send notification to the OCC via your broker that you do NOT want them exercised. For IB, you can do this via TWS.
Just extra insurance in case something happens after hours that force your options in the money.
Quah, "assigned" in the options world only pertains to those being short in the money options positions. Many retail long option holders will refrain from " exercising" their long positions that jsut barely fall ITM on expiration Friday. Usually this is due to the added exercise cost or lack of funds
Perhaps someone could answer this hypothetical:
I have an IB IRA account. I am long 10 contracts of GOOG at 300 (1000 shares).
I have $1K in cash in the account and no other equity.
I elect to exercise the options to buy the 1000 shares of GOOG at 300 because I plan to immediately sell the 1000 shares at 304. (Forget that I could probably sell the options for much more than a $4 premium).
Would IB allow me to exercise the options and generate a $299K debit in a cash account?
If not, why not?
If not, and I have the right to tell IB not to execise upon expiration, don't they have the same obligation to act in a reasonable manner and decline the exercise on my behalf.
I have an IB IRA account. I am long 10 contracts of GOOG at 300 (1000 shares).
I have $1K in cash in the account and no other equity.
I elect to exercise the options to buy the 1000 shares of GOOG at 300 because I plan to immediately sell the 1000 shares at 304. (Forget that I could probably sell the options for much more than a $4 premium).
Would IB allow me to exercise the options and generate a $299K debit in a cash account?
If not, why not?
If not, and I have the right to tell IB not to execise upon expiration, don't they have the same obligation to act in a reasonable manner and decline the exercise on my behalf.