Margin Call on an IB IRA account (Need Suggestions)

I'm not sure this came up in the preceding 19 pages of posts. The unfortunate OP found that in the final hours of that fateful Friday, the call option he owned, there were no bidders. Certainly the right answer is to click the famous button on IB's TWS screen to prevent the exchange from automagically exercising your option, leaving you with half a million dollars worth of stock that you can't pay for, and leaving you hanging out in the wind until the market opens Monday. Anyway, my question, could he not have gone short and written for sale an offsetting call option to bring himself to neutral and lock himself into safety? Could he not have done this at 3PM on Friday and left the office early in complete safety? Is this completely safe? Or if the bid was NIL on unloading his long call would it also typically be NIL on shorting a second offsetting call? And more importantly, what are the micro-details of doing this? Maybe what would happen is he would get some small change for selling the call, but OCC would still exercise his first call on Saturday, and the Monday low opening, well writing the second call would be cold comfort since it only stays linear against the dropped opening price. So what about buying a put on Friday at 3PM? Maybe $800 was not enough, if they were even available.
 
You cannot short stocks without margin and the ability to borrow if the position goes against you. The rules for stock equity IRA's preclude borrowing (margin in the true sense).

IB recently created margin accounts without the ability to borrow. This seems to be an endrun around the 3 day settlement rule and would not have helped in the matter discussed in this thread.
 
I am quoting from another thread. IB recently let you "simply change your IRA from "Cash" to "Margin".

"Here is an extract from the IB announcement

IRA Margin Accounts Now Available

IRA Margin Accounts that allow you to immediately trade on your proceeds rather than having to wait for your proceeds to settle, trade assets in multiple currencies, and trade limited option spread combinations are now available. IRA margin accounts have certain restrictions in comparison to regular margin accounts, and borrowing is never allowed in this account. See our Trading Permissions page for more information. You may upgrade an IRA Cash Account through Trading Permissions under Account Management.
 
developer17, even if you do not take any legal action against your broker, you still must clarify with IRS regarding the possible "excess contribution" problems that may cost you a lot year after year owing to the inherent excise tax issues. If you do nothing, IRS may use it against you. Try to resolve the issue before the year is over--before it gets really really bad.
 
Developer17,

I still cannot understand why the broker would allow you to trade options in your IRA. I have a self-directed IRA and all I could trade on it was covered calls which I decided not to apply for. So, I am stuck trading stocks, ETFs and mutual funds.
Consult a lawyer. I would hazard a guess that the broker erred
in allowing you to trade options in your account. This is probably against IRS rules on IRAs but, a good lawyer can make you whole maybe, even sue your broker for damages arising from their negligence.
 
Many of us on this forum can assure you that IB lets you trade a wide variety of instruments in your IRA. Assuming you testify to lots of experience, and sign (electronically) many waivers. The problem is probably not with the lawyers who came up with all those forms to cover IB's ass. The problem is with a trader with insufficient experience. Or possibly with the OTHER brokers who almost all do not permit these advanced instruments in IRAs. But IB must feel that the SEC allows it. Following is part of my daily statement from IB:

Account Type Individual
Customer Type IRA-Traditional
Account Capabilities Margin
Trading Permissions SSF,Stocks,Options,Bonds,Forex,Futures,Futures Options
Base Currency USD
 
There is no restriction on the products that you can trade on your IRA account. It's your responsibility for your own action, you just have to suck it up and pay it back.

For an IRA account, it's best to stick to stocks with no or little margin. The reason is clear, this is going to be long term, and the account is small compare to your regular trading account.
 
thecalip, Could you give an example of sticking stocks with some margin in an IRA account? In any point, which broker let you borrow (i.e., buy stocks with clearly more than the cash value of the account) in your IRA accounts for stocks?
 
Not sure about stocks, but I sometimes trade the E-mini S&P 500 Futures e.g. as a hedge (symbol starts with ES, see http://www.cme.com/trading/prd/overview_ES702.html ) They only hold me to $2500 margin during the day and $4000 overnight even though I am wielding a $60,000 contract. So this is an example of leverage and margin within an IRA. And its dang useful too, too bad nobody but IB lets you do this. (Actually, would be interested in names of other brokers that offer such flexible IRAs).
 
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