maybe you should call or email ib and get the correct answer.
You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Margin Call on an IB IRA account (Need Suggestions)
- Thread starter developer17
- Start date
maybe you should call or email ib and get the correct answer.
Brings up a couple of questions for me:
1. Election takes place overnight I believe. Consequently, you wouldn't have the shares until the next morning at which point you would have an instant margin call.
2. You'd have to short in advance of that. Would you be allowed to short that much GOOG with only 1K in the account. No I think.
From IB:
Short Marginable Positions:
Maximum (50%*stock value, short sale maintenance requirement). Short sale proceeds are applied to cash and the short position value is subtracted from equity.
Conclusion: You couldn't do this trade overnight.
From IB Maintenance Requirement:
Short Marginable Positions:
If last sale price/share >=$5 then maximum ($5 per share, 30%*stock value). If last sale price/share < $5 then maximum ($2.50 per share, 100%*stock value). Short sale proceeds are applied to cash and the short position value is subtracted from equity.
Conclusion: You couldn't do this intraday either...
1. Election takes place overnight I believe. Consequently, you wouldn't have the shares until the next morning at which point you would have an instant margin call.
2. You'd have to short in advance of that. Would you be allowed to short that much GOOG with only 1K in the account. No I think.
From IB:
Short Marginable Positions:
Maximum (50%*stock value, short sale maintenance requirement). Short sale proceeds are applied to cash and the short position value is subtracted from equity.
Conclusion: You couldn't do this trade overnight.
From IB Maintenance Requirement:
Short Marginable Positions:
If last sale price/share >=$5 then maximum ($5 per share, 30%*stock value). If last sale price/share < $5 then maximum ($2.50 per share, 100%*stock value). Short sale proceeds are applied to cash and the short position value is subtracted from equity.
Conclusion: You couldn't do this intraday either...
IB implemented immediate exercise a while ago, putting the long stock in your account immediately when you exercise a call, or taking stock from your account when you exercise a put. I have some recollection, though, that they may have suspended this feature.
If this were to happen, you would probably be immediately liquidated and make the diff between the strike and the liquidation. I still have the question of whether a margin call is generated and whether doing this, or doing it repeatedly will get your account frozen.
Can someone from IB comment please?
If this were to happen, you would probably be immediately liquidated and make the diff between the strike and the liquidation. I still have the question of whether a margin call is generated and whether doing this, or doing it repeatedly will get your account frozen.
Can someone from IB comment please?
Quote from JackR:
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 don't know but the common sense answer is no because you don't have the buying power to get the shares. You will have to sell the calls to get the profit.
John
I don't really understand why anyone would think this is someone elses fault. Clearly the guy shouldn't have been trading options. Any real options trader would know to check all their positions after 4:15, out of habit from the heydays.
And as someone posted earlier, there was a bid around closing time, .05, maybe he was too cheap to pay the vig and decided to let it ride. Again, u don't shut ur screen off at 4pm and hit the bars on expiration. So many rookie mistakes were made here, everyone should know the auto-excercise thresholds and if he bothered to look at the price a few minutes after 4pm, he had til noon the next day to call his broker and give instructions. This reminds me of a takeover that occurred about 15 yrs ago, I think it may have been rjr with nabisco or something. They announced the takeover after mkt hours on expiration friday. Lots of people got screwed but hey, they shoulda known the rules.
And as someone posted earlier, there was a bid around closing time, .05, maybe he was too cheap to pay the vig and decided to let it ride. Again, u don't shut ur screen off at 4pm and hit the bars on expiration. So many rookie mistakes were made here, everyone should know the auto-excercise thresholds and if he bothered to look at the price a few minutes after 4pm, he had til noon the next day to call his broker and give instructions. This reminds me of a takeover that occurred about 15 yrs ago, I think it may have been rjr with nabisco or something. They announced the takeover after mkt hours on expiration friday. Lots of people got screwed but hey, they shoulda known the rules.
Here's one i didn't see covered by anyone: THE IRS.
The IRS does not allow margin in IRAs, any IRA that is used as collateral is deemed to have been fully distributed. This evokes the full taxes and penalties by the IRS.
If audited, I'd highly suspect this type of debit balance behavior will cause it to be deemed a taxable account, and not a true tax exempt/defered account. It's the exercise with no available funds that's the problem.
The IRS does not allow margin in IRAs, any IRA that is used as collateral is deemed to have been fully distributed. This evokes the full taxes and penalties by the IRS.
If audited, I'd highly suspect this type of debit balance behavior will cause it to be deemed a taxable account, and not a true tax exempt/defered account. It's the exercise with no available funds that's the problem.
IRA money is untouchable in bankruptcy. Why would losses in IRAs be able to cross-over into non-IRA money?
Maybe if you're a professional trader, you can take this as a loss on your taxes.
All I can say is you need professional legal and accounting help - its an interesting academic/public policy question though.
Good luck.
Maybe if you're a professional trader, you can take this as a loss on your taxes.
All I can say is you need professional legal and accounting help - its an interesting academic/public policy question though.
Good luck.