Wow, what a disaster.
What will IB do next? Make a TV commercial using actors with even deeper voices?
What will IB do next? Make a TV commercial using actors with even deeper voices?
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PUT options liquidated at worst possible prices
- Thread starter somedudetrader
- Start date
It could be the Exchange or the broker .Here is mathematical explanation:
May 6 , 2:50 PM-
SPY = 110
# of contracts = 100
For a split second at 2:50:00 PM lets assume
Long June SPY PUT 119 -> B= $9 A= $9.5 Value = $90000
Short June SPY PUT 114 -> B= $ .01 A= $ 20000 value = $ -2000000
( I witnessed B/A .01/20000 for some SPY contracts . Even Illum from post # 2 mentioned the same. I even logged into my other broker account to validate the crazy B/A was not a mess up coming from my first broker. The quotes matched for both the brokers)
@ 2:50:01 PM
IB auto liquidate algo measures the risk.
@ 2:50:10 PM
IB auto liquidate algo triggers orders.
At that moment the whacked B/A becomes little less whacked
Long June SPY PUT 119 -> B= $5 A= $7 Value = $50000
Short June SPY PUT 114 -> B= $ 8 A= $ 10 value = $ - 100000
As per theoretical Black Sholes model used by most of the exchanges , the only varying parameter is intraday Implied volatility the impacts the option price.
Even if the IV of you short 114 P shot up from 29 to 2,000,000( making up some number) in 10 seconds still the theoretical price of the option can never be 20000 . The maximum price of option cannot exceed its strike value.
.01/ 20000 B/A may not be applicable to your scenario . Just speculating what could have possibly happened.
To summarize you deep ITM bid of 119P could have been lesser than ask of ITM 114 P at the time of /just before liquidation.
If this is the case then Exchange is to be blamed for mispricing ( and if its 01/20000 B/A scenario than its 110 % exchangeâs fault)
If this is not the case then your broker is the culprit
You need to find out at what time auto liquidation order was placed and investigate the B/A for both your long and short strikes for few time frames just before liquidation.
May 6 , 2:50 PM-
SPY = 110
# of contracts = 100
For a split second at 2:50:00 PM lets assume
Long June SPY PUT 119 -> B= $9 A= $9.5 Value = $90000
Short June SPY PUT 114 -> B= $ .01 A= $ 20000 value = $ -2000000
( I witnessed B/A .01/20000 for some SPY contracts . Even Illum from post # 2 mentioned the same. I even logged into my other broker account to validate the crazy B/A was not a mess up coming from my first broker. The quotes matched for both the brokers)
@ 2:50:01 PM
IB auto liquidate algo measures the risk.
@ 2:50:10 PM
IB auto liquidate algo triggers orders.
At that moment the whacked B/A becomes little less whacked
Long June SPY PUT 119 -> B= $5 A= $7 Value = $50000
Short June SPY PUT 114 -> B= $ 8 A= $ 10 value = $ - 100000
As per theoretical Black Sholes model used by most of the exchanges , the only varying parameter is intraday Implied volatility the impacts the option price.
Even if the IV of you short 114 P shot up from 29 to 2,000,000( making up some number) in 10 seconds still the theoretical price of the option can never be 20000 . The maximum price of option cannot exceed its strike value.
.01/ 20000 B/A may not be applicable to your scenario . Just speculating what could have possibly happened.
To summarize you deep ITM bid of 119P could have been lesser than ask of ITM 114 P at the time of /just before liquidation.
If this is the case then Exchange is to be blamed for mispricing ( and if its 01/20000 B/A scenario than its 110 % exchangeâs fault)
If this is not the case then your broker is the culprit
You need to find out at what time auto liquidation order was placed and investigate the B/A for both your long and short strikes for few time frames just before liquidation.
It doesn't matter whether the ask on the short is 10 million, it's legally covered by the long, which can be any price as well.
No liquidation necessary.
The end.
No liquidation necessary.
The end.
WIth respect, Cdn, you'd feel differently if you had a defined risk options position open and it was improperly liquidated by a bot, resulting in a loss that was many multiples of your expected max loss as defined by the rules and regs of the options markets. This position has a max loss which is good even if nuclear war is instigated. If (and I keep stressing this 'if') the OP is telling the truth about his positions, he got screwed by IB.Quote from Cdntrader:
Huh?? you've just described exactly why I love IB. That's their whole buisness model. I assume you are not a client.
By the way, I am a satisfied IB client. I just want an explanation on this one.
This is a very unfortunate situation, and IMO ridiculous. Whatever algortihm they have should have more smarts than random liquidations from outrageous bid/ask spreads.
Were the bid/ask spreads crazy with SPX options also? If I had an account at IB (I actually do), and I put all my cash into long vertical SPX put spreads, I should NEVER have a margin call or auto-liquidation at any given time, regardless of what the bid/ask spreads are on either leg.
Were the bid/ask spreads crazy with SPX options also? If I had an account at IB (I actually do), and I put all my cash into long vertical SPX put spreads, I should NEVER have a margin call or auto-liquidation at any given time, regardless of what the bid/ask spreads are on either leg.
Quote from somedudetrader:
I had long June SPY 119 PUT options and short June SPY 114 PUT options today, and they were liquidated during the volatile trading period. They were liquidated at the time when SPY was trading at 110-111.
Simple math tells me that at the very very least, my 119 PUT options should be worth $8 - $9, since a put option gives me the right to sell SPY at 119, and given SPY being at 110-111 at the time, this option should at least be worth $8 - $9 (which should be much more, given the volatility and time value). I was liquidated at $5. My 114 short puts were liquidated at > $8.
First of all, my PUTs were evenly hedge, so every point lost by the 114 short PUT in the falling market is gained by the 119 long PUT. So why was I liquidated by Interactive Brokers?? Also, the prices were unreasonable as explained above, which caused me losses in the 5 figures. How should I get this compensated?
In theory you have no appeal and must accept the damage.
In practice, speak with your broker about the indecency of selling a spread that was worth a fw dollars and being forced to pay a cash debit to close. They will tell you they use market orders to liquidate. tell them that's crap. You wont win, but speak nicely and you may get an adjustment.
If you went over your margin limit, that is not your broker's fault, but they an try to treat their customers as if they were human.
Ask what they plan to do to make it up to you.
Mark
Quote from somedudetrader:
I'm sorry to be reluctant to provide all information about my account (for obvious reasons). But seems like the community can benefit from my case so here is what I can tell everyone:
My positions in my account were:
- x amount of June SPY 119 long puts
- x amount of June SPY 114 short puts
- y amount of May USO 40 long puts
- y amount of May USO 37 short puts
- cash
So those are the only positions I had at the time. Obviously in yesterday's falling market, USO (oil) was also falling and my vertical spread there was earning money as well.
IB just shouldn't have taken the wide spread at the time and thinks that was the market price. If they find the real value of my positions, nothing should have been liquidated. If they see that for example the spread is 0.01 and 9999 for a $100 stock, how can they think 0.01 is the market price and liquidate because the account doesn't support a 0.01 position??
The case is not about real value of your positions at any market price of underlyings at any time. The case is regarding margin requirement. Period.
As we all know there is no margin requirement on long veritcal put/call spread (same as there is no margin requirement on long call/put). In case someone at IB forgot how they calculate their margin requirement, you can forward them to their own webpage:
http://interactivebrokers.com/en/p.php?f=margin => options
If somehow they are still not able to go through their own margin algorithm, here's calculation (from their www):
Put spread: (Maximum (Short Put Strike - Long Put Strike, 0))
In your case:
SPY (Maximum (114-119, 0))=Maximum (-5, 0)=0
USO (Maximum (37-40, 0))=Maximum (-3, 0)=0
That is it. There is no margin requirement (which is obvious for long vertical put spread). This is regardless of market price, price can be 1mln in SPY 114 puts and 0.01 in SPY 119 puts and you don't care because margin requirement for this position is 0 and it should never initiate liquidation.
Quote from Pinozi:
Liquidating a long put vert in a falling market - wow
Im going with one of two theories
1) OP is a troll
2) IB's risk and liquidation engine is seriously flawed
Both are very damaging to IB's rep so I hope to see a response from them
PS - I am a satisfied IB customer
this thread is bordering on hysteria. neither 1or 2 is likely. one report of a possibly erroneous liquidation is not proof of systematic problems.if it was systematic there would have been dozens of report. if OP is a troll he will be outed quickly. nothing here is remotely damaging to IB's reputation.
the highest probability is that it was a random error which will be taken care of.