PUT options liquidated at worst possible prices
- Thread starter somedudetrader
- Start date
This all sounds reasonable.
What is strange is that the workings of the auto-liquidation algorithm does not appear to be discussed on IB's website. It is a bad situation where IB's own customers cannot find anything in writing which outlines the actual risks and contingencies they would face in a situation like the May 6th market crash.
An IB rep on here said you get 10 minutes warning. If that is true, it should be in writing on the IB website, and on the customer legal agreement. Being told you have 10 minutes, verbally on an internet message board, is legally worthless, they could change that policy overnight and you are screwed.
The one thing they do say on the website is that you get 3 warnings - when you are 5% from margin deficiency, when you are at it, and when the engine is about to auto-liquidate.
IMO the best approach would be to have some human oversight. That will cost money but a few risk managers at the firm level to double check liquidations when things are down 20%+ or 5 standard deviations+ should not be too hard and is definitely worth the cost.
In any case, the current silence from IB is deafening, and hardly confidence inspiring. I'll be on the phone to some other major brokers who don't give you this issue, and if IB don't act on these concerns, I'll be forced to switch from them.
If you had long $1 million stock hedged by short $1 million ES futures, and got liquidated at market in the ES and your stocks at 0.01 bid, would you "love" IB for doing that?
All these points you suggested should *already be implemented*. IB are in fucking amateur hour here, they are looking more and more like a useless bucket shop, not a professional brokerage firm.
There's no such thing as a cash covered naked put.
And neither of those things are the same as a debit spread.
LOL
I'll come back to this thread if there's a real update.
I beg to differ, stefan_777. See http://individuals.interactivebrokers.com/en/p.php?f=margin. It shows that IB does allow short naked puts in a cash account, subject to a margin requirement equal to the strike price for each put (assuming it is either American style or physically settled, as in this case). This requirement always applies at all times in a cash account, regardless of whether the naked short put is ever assigned or not assigned. IB's website also shows that in a cash account, where a put has either an European-style exercise, as in this case, OR where a put is settled in physicals, as in this case, it is not margined as a spread, even though the account may hold the put as part of such a spread. The long put, in such a cash account, is simply ignored for purposes of determining margin requirements, and the short put is subject to the same margin requirement as a naked short put (even though it is obviously not a naked short put).
I think you are also incorrect to suggest that there is an "initial requirement" for a naked short put in a cash account at IB (having American exercise or physical settlement). IB makes no distinction between the initial requirement and the maintenance requirement for such a short put in a cash account.
Yes, we all understand that the OP's short puts were not naked, and were instead part of a put spread. BUT in a cash account, IB imposes exactly the same margin requirement, on the short leg of a put spread, as IB would if those short puts were naked (assuming either American exercise or physical settlement). If the OP had a cash account, then IB's published margin rules simply ignore the fact that the short puts were part of a put spread (assuming either American exercise or physical settlement).
Show us where it says that. I don't think you can, because it doesn't say that. The website does not say that american style options need to be in a margin account.
If he had a cash account, then he was auto-liquidated within minutes of his account falling below margin requirements for his short puts. Assignment notices would have played no role.
No, I don't think so. The website says that in a cash account, the customer must have enough margin to cover the entire strike price of each short put (assuming either American exercise or physical settlement). The amount of the debit or credit generated by the put spread, of which a short put is one leg, is irrelevant to that short put's margin requirement in a cash account at IB (assuming either American exercise or physical settlement).
So, I again ask:
Were the OP's puts held in a cash account? Why has this question gone unanswered?
He doesn't have a cash account because he's holding a put spread with American style options; SPY's. Cash accounts can only do put spreads with European options.
Stop talking about naked puts. It's a put spread and it has its own margin requirements that are simple and clearly visible on IB's website pictured above.
By the story of the OP, he met both the initial and maintenance. You can't enter the position without paying the initial, and since the maintenance is the same as the initial, you can't go under margined based on these clear and simple rules.
By now I guess somedude is laughing at his/her screen
in his/her TOS/OpEx/... office
