Short strangle legs were assigned even though price of underlying stayed within the price bounds?
- Thread starter stochastix
- Start date
You're right, now I got it
I feel you, I'm still trying to grasp the logic why IB tells my i'm long on a net short position, it delays my thought process when trying to enter/exit position in strong movements.
On a Bull Put spread i'm long for IB, so to 'close' is to 'sell' the Bull put spread, even RH handle this better because you Buy to close a net short position. I'm fairly new at this so maybe there's a good reason or logic to handle it like that, but when you sell at limit you want XX or higher price and those positions being credits -XX it stills confuses me.
I'm trying to get it,
But, if you became bullish in your example, why would you keep the already profiting put instead of selling it? to hedge if the price of the underlying keeps dropping?.
(side note: in my case I have zero tax implications, don't know if the focus of the strategy of the synthetics has tax considerations in the decision making).
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It's an example of converting a put to a call. Your motivation isn't the point. It literally converts the put to an OTM call (same strike as the put) while monetizing you put gains.
You don't lose the gains on your long ITM put. The share-delta exceeds the put delta, so the hedge is perfected. You've securitized the full put gains. The downside is that you lose whatever TIME PREMIUM (extrinsic value) that was left in the put and have converted the position to a long call. You have converted the risk from long DITM put to long DOTM call--while locking in your put gains.
The loss of time value in the put is received back with the time value in your new call.
So you own the synthetic call (long put + stock = synthetic long call). You can take it further and take all risk off by shorting the REAL call.
Long stock + long put - call = conversion arbitrage (riskless).
Watch out that you fully understand American and European styles- you may find you are exercised on shorts when your long more than covers the position - this happens with IB -random sweeps through accounts looking for anyone getting close to a margin call- they can use discretion and you will never know the truth. Use a proper options broker. I never made money with IB as trades randomly executed too!
Which broker do you recommend ? They chopped my 6k gain to a 5k and the margin turned right the fuck around after they chopped it. I made the mistake of not leaving enough margin initially to cover my max loss. Now I'm not close to the barrier any more (for now unless a terrorist attack or new war)
Thanks again for such great information, I know it's all over the web but it's no the same as reading it step by step in this thread.
Found the perfect easy example for studying the conversion arbitrage, and I didn't knew it could be theoretically placed neatly in one order:
Underlying at 1.00 sharp (talk about an opportunity to learn with easy maths!)
1C ask @ 0.20
1P bid @ 0.10
Not that is going to fill at the max but perfect as an example: $90 for opening a $100 trade, $10 Edge at opening
Hope to be able to move soon to the States, you surely are the kind of guy i'll gladly buy meals and drinks, an BBQs on weekends!, in my circle I'm the one answering all the options and market questions, and none of them bastards is buying me anything!
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IB is seemingly randomly requiring more than the risk on bog-standard debit spreads. $60 vertical risk ($6,000) and IB charging over $70. I left them a few years ago when losing connection while legging. I called the trade desk and got disconnected. They literally hung up on me twice due to the influx of calls. I worked the order through TDA and wired out of IB the following week.
They went to bat for me during the RAES arb in 2000-01, but never again. Global access is nice, but they are light on servers and their haircuts are ridiculous.
They went to bat for me during the RAES arb in 2000-01, but never again. Global access is nice, but they are light on servers and their haircuts are ridiculous.
You in the states? at the moment i'm forced with IB because of my nationality, but if you are able to use ToS, it's a great platform. You can try it as a second option.
Not that IB is bad, they are a powerful institutional level broker. All brokers do that sweeps, specially in low margin accounts (RH for example does it in great scale probably for the profile of a great number of their users), IB in my case have never done it, they even don't let me close covered positions that I just want to close for neatness (when I just don't want the assignment/exercise crossing on losing positions, probably they don't let me close even at full strike width price to save me some on commisions).
Also take in consideration that us using IB didn't have even a small hiccup these past days when ToS was a hot mess.
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