PUT options liquidated at worst possible prices

[patrick_h_wang]

Can you answer TRUE to this question? Were the vertical
spreads your only positions besides cash in you account at that
time? If yes, IB is very very wrong. You have a vaild case to
have a refund. If not, check if the margin call was caused by the
other positions. I think it most likely is. In that case, there is
not much hope to get a refund.

 

[ZeroSigma]

Quote from MTE:Your comment is ridiculous! There is no justification for IB doing what it did.

So here are some questions related to IB margin-call liquidations that some of us would be glad to have answered by IB:

1) is the threat of overnight / market-at-open liquidation real,

2) are there any safeguards against bad ticks and after-hours ECN price manipulation, e.g. with asymmetric bid/ask spreads, as described above,

3) is midpoint pricing used when computing portfolio value for illiquid instruments, when the bid/ask spread can be worth significant amounts (and thus post-liquidation losses can surpass available equity, e.g. by -10%),

4) are porftolio values not monitored tick-by-tick and is some sort of price smoothing / periodic sampling used to attenuate the volatility of portfolio values (again at the risk of debiting the account),

5) is information about combination orders ignored when auto-liquidating, so that hedged positions such as leveraged options spreads are not closed in their entirety, but legged-out of (increasing capital requirements significantly) even when the customer used 'proper' TWS/API tools to establish the position (rather then legging in manually),

I believe the answer to question 1) is NOT, because IB once stated that they actually wait a few minutes after cash market opening for the bid/ask spreads to normalize. As for the rest of them, my guess would be YES, but I'd love to be corrected.

 

[MTE]

Quote from patrick_h_wang:

Can you answer TRUE to this question? Were the vertical
spreads your only positions besides cash in you account at that
time? If yes, IB is very very wrong. You have a vaild case to
have a refund. If not, check if the margin call was caused by the
other positions. I think it most likely is. In that case, there is
not much hope to get a refund.

This is a good point. IB does liquidate positions to meet the margin call in other positions.

 

[failed_trad3r]

Quote from MTE:

Your comment is ridiculous!

There is no justification for IB doing what it did.

Theres no justification if this was manual liquidation. However like you said auto-liquidation doesnt work like that. Auto-liquidation doesnt use common sense. If the 114 put is worth a trillion dollar, and 119 is worth 0$, then when it auto-liquidates nothing can stop you from getting 1 trillion in debt.

Basically you are blaming IB's computer program for something it was supposed to do: auto-liquidate.

 

[Blotto]

Quote from failed_trad3r:

IB is not wrong.

You were short 114 and long 119 puts. In rational markets these cancel out. But what if an irrational market causes your short 114 to be worth much more then the 119 puts?

Theoretically the difference is 5 SPY points. But practically, the risk is 119 SPY points. The reason is that a 114 put can be worth $100 when the 119 put is worth $1. Well you say thats impossible. Well if impossible if nobody is willing to sell the 114 put at less than $100, like yesterday.

There is no "irrational market". These contracts could be held until settlement. If they are both in the money, you buy the SPY at 114 to settle your short put, and sell the SPY to your long put counterparty at 119 to close.

Just because the quotes on those strikes were "off" and nobody was arbing out the difference does not change the obligations of the contracts.

If the IB system is really so harebrained then we ought to know about it, and the OP may be entitled to compensation.

Quote from failed_trad3r:

Theres no justification if this was manual liquidation. However like you said auto-liquidation doesnt work like that. Auto-liquidation doesnt use common sense. If the 114 put is worth a trillion dollar, and 119 is worth 0$, then when it auto-liquidates nothing can stop you from getting 1 trillion in debt.

Basically you are blaming IB's computer program for something it was supposed to do: auto-liquidate.

Automatic or manual makes no difference. It was done by IB, either through their software or their employees.

No blaming IB's computer program - blaming IB for programming their software in this way.

 

[Ghost of Cutten]

Quote from somedudetrader:

Here's what they did to me...They first sold my long 119 SPY puts at a really bad price. SPY was trading at around 110-111 at the time.

Then they covered my short 114 SPY puts also at a really bad price too.

maybe being cheated > $6 in 16 puts and 16 short puts isn't a lot for many of you, but that's well over 10k and it's a big deal for me. No replies from IB on the complaint I filed yet...

Wait - why did they liquidate the long 119 puts in the first place? Did you get a margin call on some other position?

 

[Ghost of Cutten]

Quote from patrick_h_wang:

Can you answer TRUE to this question? Were the vertical
spreads your only positions besides cash in you account at that
time? If yes, IB is very very wrong. You have a vaild case to
have a refund. If not, check if the margin call was caused by the
other positions. I think it most likely is. In that case, there is
not much hope to get a refund.

I disagree. The liquidation was incompetent and actually harmed IB's interest. The way to liquidate a fully in the money vertical like that is NOT to leg out of the long leg first - that is truly idiotic and actually increases IB's risk as well as the customers.

However, I agree that the latter case is far less bad than the former. But it's still stupid as hell.

 

[Trader666]

From the screen shot the OP posted, the long side was liquidated 2+ minutes before the first 5 short contracts were, and 7+ minutes before the remaining 11 contracts were bought to close. :eek:

Quote from Ghost of Cutten:

The liquidation was incompetent and actually harmed IB's interest. The way to liquidate a fully in the money vertical like that is NOT to leg out of the long leg first - that is truly idiotic and actually increases IB's risk as well as the customers.

 

[u21c3f6]

Did you have a cash or margin account?

Joe.

 

[atticus]

Quote from somedudetrader:

Here's what they did to me...They first sold my long 119 SPY puts at a really bad price. SPY was trading at around 110-111 at the time.

Then they covered my short 114 SPY puts also at a really bad price too.

maybe being cheated > $6 in 16 puts and 16 short puts isn't a lot for many of you, but that's well over 10k and it's a big deal for me. No replies from IB on the complaint I filed yet...

Please provide a screenshot of the IB bulletin which provides info on the auto-liquidation. You can access yesterday's bulletins.