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PUT options liquidated at worst possible prices
- Thread starter somedudetrader
- Start date
Quote from Coolio:
Maybe the 114 put was exercised, leaving the account underwater, then the auto program started firing off market orders when there was no market.
You can submit a exercise notice, when the market is open. However, you will not get assigned in the middle of a trading session.
A lot has to be done, when the market is closed, to complete the exercise / assignment process. It is not instantaneous:
Assignment occurs when an option holder exercises his option by notifying his broker, who then notifies the Options Clearing Corporation (OCC). The OCC fulfills the contract, then selects, randomly, a member firm who was short the same option contract. The OCC then notifies the firm. The firm then carries out its obligation, and then selects a customer, either randomly, first-in, first-out, or some other equitable method who was short the option, for assignment. That customer is assigned the exercise requiring him to fulfill the obligation that he agreed to when he wrote the option.
There is a surprising lack of basic options knowledge here. When referring to the SPY, an assignment is a good thing if you are long a vertical put spread, as the OP claims he was. You get assigned on your short puts so you are now long SPY shares and still have your long puts, which means you are long a call. You can either sell your position or exercise your long puts to be flat at a maximum profit. So being assigned when you are long a vertical put spread is the best thing that can happen. If he were assigned the 114 puts then he bought SPY at 114, then he exercises his 119 puts so he sells the SPY shares he bought for 114 at 119 realizing the maximum 5 point profit. There is a different situation when you are dealing with an American style option settled in cash but that is not what the OP had.
To those who say there is some sort of risk to the brokerage firm from the OPâs position, you donât understand options. They are option contracts, as in a legally binding contract. In this case it does not matter what the market is or if there are no buyers and sellers. A 5 point vertical spread in the SPY is worth from 0 to 5 no matter what, and yes that means no matter what. If the exchange shuts down completely until expiration and no knows where things are and there is no market then the exchange rules take that into account and they will figure out an expiration mark and the spread will be worth 0 to 5. That is why Reg T recognizes them as defined risk.
If there were no other mitigating factors that the OP has failed to state, then IB is completely liable here and would undoubtedly lose in arbitration. If the OP had no other positions than correctly hedged, fully paid for vertical spreads and IB traded out of those spreads for him without any interaction or pending/executed orders by him then I would have to question why someone would trade with them. I am still waiting for someone at IB to give us those other mitigating factors that might explain this seemingly catastrophic problem.
To those who say there is some sort of risk to the brokerage firm from the OPâs position, you donât understand options. They are option contracts, as in a legally binding contract. In this case it does not matter what the market is or if there are no buyers and sellers. A 5 point vertical spread in the SPY is worth from 0 to 5 no matter what, and yes that means no matter what. If the exchange shuts down completely until expiration and no knows where things are and there is no market then the exchange rules take that into account and they will figure out an expiration mark and the spread will be worth 0 to 5. That is why Reg T recognizes them as defined risk.
If there were no other mitigating factors that the OP has failed to state, then IB is completely liable here and would undoubtedly lose in arbitration. If the OP had no other positions than correctly hedged, fully paid for vertical spreads and IB traded out of those spreads for him without any interaction or pending/executed orders by him then I would have to question why someone would trade with them. I am still waiting for someone at IB to give us those other mitigating factors that might explain this seemingly catastrophic problem.
Thank you .. this is the options forum but most of the chit chat seems to not be able to digest the basics of what a spread is.
It is obvious that IB does not recgnize what a spread is: a single, off-setting entity, designed to define risk at the cost of limiting upside as compared to a solitary put.
It is obvious that IB does not recgnize what a spread is: a single, off-setting entity, designed to define risk at the cost of limiting upside as compared to a solitary put.
Quote from Coolio:
Thank you .. this is the options forum but most of the chit chat seems to not be able to digest the basics of what a spread is.
It is obvious that IB does not recgnize what a spread is: a single, off-setting entity, designed to define risk at the cost of limiting upside as compared to a solitary put.
from the facts presented it is not obvious at all that IB does not know what a spread is. not one person has said I had only vertical spreads and got liquidated.
in a mixed account stocks have to be liquidated first not spreads.
read carefully the post from opt 789.
Quote from newguy05:
IB is complete shit when it comes to margin/liquidation. It uses a fully automated engine.
Only thing you can do is always make sure there is enough cash in your account so it never get triggered.
I remember when i first started trading using IB, i had a fully balanced es mini option trade open with enough cash to cover. Then at night after the us market was CLOSED, the fucking thing started to auto liquidate my legs randomly using MARKET orders when the bid/ask spread for those option on futures were around 20-30pts WIDE!!!
Of course as soon as it sold off just 1 contract, my entire position became unbalanced on top of instant loss of 20-30pts, this triggered a point of no return causing further liquidations, and i could not open new trades to manually rebalance due to negative cash requirements my account now has.
So i literally just sat there...in the middle of the night, watching my position taken apart leg by leg at market order with a 20-30pt loss due to the spread on each trade, until there is nothing left. Call to customer service was of course another shitshow, one cs finally understood what is happening to my account, but he wont connect me directly to the trading desk. So it's me telling him to tell some trader in one of their asia's desk (was at night). Nothing ever got done.
I will never forget that night.
Luckily i just started using IB so didnt transfer too much money over and just chalked up to a lesson learned. After that i never let my excess drop below 30k (for a 100k account). Came from optionsxpress which is all human managed, it was quite a shock.
That been said, IB is great as a trading platform, just dont get fucked by their liquidation engine (which runs in after hours too).
ps: i would be fine in the morning if they didnt liquidate my positions during the night. But i was glad i learned this lesson earlier on.
/rant off
maybe for futures there is autoliquidate in the afterhours but not for stocks.
ZD -
Even so, that spread was a profitable one. Why would IB wipe out their customer like that? If the spread was now worth $5.00 ($500 per contract .. why not just liquidate the whole spread and take that customer's profitable positon to pay for his unprofitable ones? Why make the situation worse?
And now, they're being slammed right here in public .... how many $ thousands will get sucked out of their firm due to their robo-liquidator software.
Friday AM the options markets were up and running perfectly smooth.
The most disturbing thing about this is the lack of human interaction and this robo-liquidator program (probably programmed by the retard nephew of the IB CEO).
Even so, that spread was a profitable one. Why would IB wipe out their customer like that? If the spread was now worth $5.00 ($500 per contract .. why not just liquidate the whole spread and take that customer's profitable positon to pay for his unprofitable ones? Why make the situation worse?
And now, they're being slammed right here in public .... how many $ thousands will get sucked out of their firm due to their robo-liquidator software.
Friday AM the options markets were up and running perfectly smooth.
The most disturbing thing about this is the lack of human interaction and this robo-liquidator program (probably programmed by the retard nephew of the IB CEO).
Somedude, Opt789 is absolutely correct if the situation is exactly as you describe. IB must make you whole. The fine print will not protect them from a glitch in their software in this instance. This is not a case were the damages you suffered were beyond their control. You probably signed an arbitration agreement when you opened your account. You might have no choice but to get an attorney involved, but try to avoid that. Follow Opt789's advice. And please be persistent. Start with phone calls, but if that doesn't very promptly lead to a satisfactory resolution, put every subsequent action in writing and keep careful records. And please let us all know how this turns out. If IB gives you the run around we want to know that. The right thing for them to do is apologize and correct your account balance.
This brings up a related point. It seems when i opened my current account there was a footnote (small type!) connected to the arbitration agreement stating that I was not required to sign the agreement. I don't think I did as a matter of fact. Does anyone know if SEC regs do not permit brokers to force clients to agree to arbitration as a condition of opening an account? If so, I would think it is better not to sign these agreements, as one could always go to arbitration in any case.
This brings up a related point. It seems when i opened my current account there was a footnote (small type!) connected to the arbitration agreement stating that I was not required to sign the agreement. I don't think I did as a matter of fact. Does anyone know if SEC regs do not permit brokers to force clients to agree to arbitration as a condition of opening an account? If so, I would think it is better not to sign these agreements, as one could always go to arbitration in any case.
Quote from Coolio:
The most disturbing thing about this is the lack of human interaction and this robo-liquidator program (probably programmed by the retard nephew of the IB CEO).
Huh?? you've just described exactly why I love IB. That's their whole buisness model. I assume you are not a client.
No human has interacted with my account since I opened it 8 years ago .