Margin Call on an IB IRA account (Need Suggestions)

Quah,

I do accept that it was my fault that I didn't inform IB about not exercising. But look at what really happened.

THe auto exercise by the OCC happened at 4:40 PM EST as per IB and my statement. Instead of liquidating me at the open on Monday, they could have gotten me out on Friday itself for a smaller loss or maybe no loss at all. They received the Auto Exercise instructions on Friday before the after hours trading closed.

Even on Monday, it got liqidated at 9:40 AM (EST) when GOOG was pretty much at the low of the day. I'm not trying to blame anyone, but to just say that IB could have more checks in place at least for Risk Management.

AS per the NASD, you cannot lose more than your initial investment in a Cash account. Why make such a claim when there can be such a exception to the rule.
 
Quote from developer17:

Quah,

I do accept that it was my fault that I didn't inform IB about not exercising. But look at what really happened.

THe auto exercise by the OCC happened at 4:40 PM EST as per IB and my statement. Instead of liquidating me at the open on Monday, they could have gotten me out on Friday itself for a smaller loss or maybe no loss at all. They received the Auto Exercise instructions on Friday before the after hours trading closed.

Even on Monday, it got liqidated at 9:40 AM (EST) when GOOG was pretty much at the low of the day. I'm not trying to blame anyone, but to just say that IB could have more checks in place at least for Risk Management.

AS per the NASD, you cannot lose more than your initial investment in a Cash account. Why make such a claim when there can be such a exception to the rule.
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Interesting...

Have you asked why they didn't liquidate you on Friday and do they have a written policy for these situations and if not why not? I can't believe you are the first person to face this situation at IB. Nor do I believe they were out to skin you. But it does seem sloppy. I wonder if they have any sort of fiduciary duty in this situation?
 
Quote from developer17:

Quah,

I do accept that it was my fault that I didn't inform IB about not exercising. But look at what really happened.

THe auto exercise by the OCC happened at 4:40 PM EST as per IB and my statement. Instead of liquidating me at the open on Monday, they could have gotten me out on Friday itself for a smaller loss or maybe no loss at all. They received the Auto Exercise instructions on Friday before the after hours trading closed.

Even on Monday, it got liqidated at 9:40 AM (EST) when GOOG was pretty much at the low of the day. I'm not trying to blame anyone, but to just say that IB could have more checks in place at least for Risk Management.

AS per the NASD, you cannot lose more than your initial investment in a Cash account. Why make such a claim when there can be such a exception to the rule.
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True, but you never deposited "your initial investment" into the account - thus the call. You should have deposited enough money in your account to cover the price of the stock assigned to you through the exercise. It isn't IB's fault that you didn't make that deposit. If you had made that deposit, you would not have lost more than your initial investment. You never made the initial investment that you PROMISED to make when you entered into the option contract. If IB had not liquidated you position, would you have made a deposit within 3 days to cover all that stock that was assigned to you?

Let me ask you this - say, hypothetically, GOOG was +3 when IB liquidated your account and you ended up net +$15,000. Do you think you should have been allowed to keep that profit?

If IB had liquidated your account after hours on Friday and you still suffered a $5K loss instead of $9K, you'd be okay with it? How about a $3K loss instead?

Like I said in one of my earlier posts, this same thing happened to me - by my own stupidity - but with another broker. This isn't an IB only thing. The only thing brokers could do differently is force long call holders to sell their options hours before the close is they are anywhere near expiring in the money - or else have on deposit enough money to cover any possible exercise.

But doing that really isn't their job.
 
Quote from developer17:

Quah,

I do accept that it was my fault that I didn't inform IB about not exercising. But look at what really happened.

THe auto exercise by the OCC happened at 4:40 PM EST as per IB and my statement. Instead of liquidating me at the open on Monday, they could have gotten me out on Friday itself for a smaller loss or maybe no loss at all. They received the Auto Exercise instructions on Friday before the after hours trading closed.
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a little known fact is that options expire on saturday not on friday close. they couldnt liquidate you on friday. in fact i believe you had until saturday to stop the exersize if you had known and had wanted to. as a practical matter a retail trader cant use saturday because all brokers are closed but those are the rules.
 
If this was any average priced stock the close would have been $30.03 or $60.06 or $100.10

The posted weekend GOOG bid ask spread is 42 cents. The bid ask spread of IBM is 20 cents. So if the last transaction is a buy or sell would make the difference of an exercise trigger.

GOOG last transaction was EXACTLY $300.30 and not $300.29 in which case no auto exercise.

Not just a tiny bit suspicious?

Yeh, right. I know OX nixed the auto exercise. I wonder that TOS did. What about other brokers?

This was an IRA account which could have had a bit more care had IB given a damn. To bad the poster had another account they could steal from.
 
There's another thread somewhere about another firm buying in a short position after hours at a price that was unfavorable, and a response by the broker that they would no longer do that as a result of that incident. Where do you draw the line?

d17: I'd be interested in the exact cite from NASD that says "you cannot lose more than your original investment in a cash account". That may be a good point, and, if it turns out to be true, would prevent buying calls, or buying puts that are unsecured by the full value of the underlying, in a cash account. Unfortunately for us, when you talk to an attorney, he will probably correctly advise you not to discuss this further until it is resolved (at least). We'll have to watch how it plays out in the regulatory releases.

Quah: I disagree with the contention that he never deposited the "initial investment". I think a reasonable person would consider the amount of the premium to be the investment, and I'm sure there is language in many places that (incorrectly) generalizes "the most you can lose from long options is the amount of the premium", which would further reinforce this position.
 
Quote from alanm:

Quah: I disagree with the contention that he never deposited the "initial investment". I think a reasonable person would consider the amount of the premium to be the investment, and I'm sure there is language in many places that (incorrectly) generalizes "the most you can lose from long options is the amount of the premium", which would further reinforce this position.
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The most he lost on the options was exactly the amount of the premium.

The money he lost was on the stock - two totally different things.

Let me ask you this - pretend he had enough cash in his account to cover the purchase of the assigned stock - and IB didn't liquidate his ultimate position. Let's say the cost of that stock (from the exercise) was $500K, and he had that in his account.

Monday morning, GOOG opened down, and his position is now worth $491K. Do you consider that $9K loss a loss from the options? Of course not. So this "most you can lose from long options is the amount of the premium" doesn't even apply - since the option doesn't even exist any more.

I know this sucks, but I don't see how anyone else can be blamed or held accountable.
 
Quote from SirCurNon:


I guess it is okay to change the rules of the game? The above site as well as the CBOE site I previously posted ( and emailed btw ) hold themselves out to the public as experts. Sure they tell you to read the Characteristics ...
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any option trader should know the rules when trading options. auto-exercise was put in place to protect the investor. imagine if d17 was out of the country and because of time differences didn't check his acct until way after the close, and lets say goog closed 10 points in the money. if they dont auto-exercise for him, he'd still be here bitching.

bottomline is it's up to enduser, not ib to hold everyone's hands. as someone said earlier, it doesn't matter that it's an ira, this could have happened in a regular cash acct
 
IB should take full responsibility for this issue.

The transactions by IB are illegal since they bought more than affordable in a cash account.

Developer should not take the loss.
 
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