screwed by IB mistake

G

garbo

Anybody else get screwed by this IB mistake? I got this message today and the position just showed up in my account.




November 7, 2005
Exercise/assignemts in Globex, EUR NOV05 option

Dear IB customer

Due to an incorrect fixing price, exercises and assigments in the Globex EUR NOV05 options were processed incorrectly. IB used a fixing price of 1.1850 while the correct fixing price was 1.1953. If you had an exercise or assignement that was processed incorrectly, this could cause your current position as reported to you in your statement and the TWS to be incorrect. Therefore, please review your exercise/assignement activity in your account statements from Friday, November 4th and contact the IB customer service desk if you are unsure about your position.

We are working to correct this issue and anticipate it will be done by the end of the day.

Best regards



Interactive Brokers Customer Service
 
Hmmm I have had few oopsies with IB, never get an explanation or even a sorry. I suppose they are worried if they explain or apologies you'll sue them.
 
IB mostly works quite well. Mostly...

But in this case, a supposedly limited risk spread (a butterfly) turned into a nearly $2000 loss.

Maybe it's a sign to just give up!? This really sucks. And I had a great October too.

Anyway, who knows when and where the next Refco will show up and we won't be able to withdraw our money. Probably will be due to an "error" at least. Contact customer service to verify your position. Ouch...
 
I'm confused, positions are being adjusted to reflect what should have been exercised or lapsed? Where is there a cost to you that shouldn't have been expected?
 
Hi Def,

Thanks for replying.

I checked my account on Sunday night to see if I needed to cover any position from this spread. I was holding a Nov call butterfly (1.19/1.20/1.21) into expiration on Friday. There was no EUR position listed in TWS so I assumed the butterfly had expired out of the money (= no position)

Isn't that a logical assumption? No EUR position in my account after option expiration, EUR below my bottom strike price.

Now I open TWS and see I am long a EUR contract from 1.19 and it's trading at 1.1755. I had to sell at a loss of 0.0145.

I'm just bummed to lose money after I checked my account on Sunday night. Had I known, I could have closed the position immediately instead of now with the Euro falling.
 
perhaps you should have realized that you would have a position based on where the USD / EUR
was trading sunday night and based on where it settled friday ?

sorry .. I am only offering a rough seat of the pants possibility to you ... as I do not trade FX options and am not familiar with their exercise
assignment possiblilities nor time of day or day of month expirys calender let alone what your
long short exposure was with this trade
 
SethArb,

You are right. I shouldn't have trusted IB's calculations to determine whether I had a position after expiration on Sunday night. I need to remember that fact in the future. I shouldn't have relied on their data in TWS.

CME uses a fixing price mechanism for option expiration for these European style options. It is a little strange compared to stock options.
 
This was an interesting lesson - glad I didn't have to pay for it :)

Apparently, the european-style options settle using the "CME Currency Fixing Price", which is usually a VWAP of the front futures contract between 08:58 and 09:00 central time on expiration day ( http://www.cme.com/trading/prd/fx/currfixprice12658.html ). It seems to be published here at least: http://www.cme.com/prd/fx/fixing-price.html

So, it seems that one needs to watch during those couple minutes if your positions are anywhere near the money - to determine what your resulting position will be. It seems to say that anything that's one tick or more in the money from the fix will definitely be exercised/assigned. In this case, one of the wings got "pinned". Unfortunately, 100 ticks of the drop happened in the hour after expiration, so much of the damage was already done by Sunday night.
 
AlanM,

Thanks for those links.

I guess I learned the hard way about this type of option expiration.

I am still annoyed that IB didn't get this right by the time trading reopened on Sunday night because that would have saved me some $$$.

I also wonder how such a mistake occurs? Does someone manually enter the fixing price into the system? Or did CME make a mistake in supplying it?

Best,
Garbo
 
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