I am NOT. In this example, I own a put vertical. It has nothing to do with the bid or ask on individual legs. The "whole position" can't have a value less than zero, no matter what.
Should you close your IB accounts now?
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Yes, you are, and yes, it can.
I don't how to make this any clearer - if nobody wants to buy your long leg, then you do NOT have a spread, you have a naked short.
And that's a big part of what happened yesterday - there were no-bids all over the place.
If you want to argue that such a thing can only last for "a little while" and automated systems should somehow build that assumption into their behavior, that's fine, we can have that discussion, too.
I maintain personal and institutional accounts at IB, and in wake of yesterday's action this topic is disconcerting.
I do not agree with the individual a page back who said that it's not IB's problem, that these are your own issues are not their problem. I agree, except in a scenario like yesterday, or a scenario where for instance IB themselves have incorrect data. Is that your problem too - being auto-liquidated due to IB having incorrect data?
I occasionally use up my available buying power, even with portfolio margin - but not much anymore, without noticing it being so busy managing the positions, until I get a pop-up from IB at 3:40pm or so giving me that ten minute warning, "hey buddy, lighten up - you've got 10 minutes". Sure enough ten minutes later the appropriate amount is liquidated if I don't make sure to lighten up on some things. It's not a big deal, never a problem. So, I can confirm that in the past, during normal market conditions, I've never been suddenly liquidated on anything without warning.
I do not know if there are any conditions under which they will immediately liquidate. However, some clarification from management, factoring in yesterday's conditions would be very welcome, including reaffirming the 10 minute warning, and that they will never auto-liquidate prior to 10 minutes following a warning.
I do not agree with the individual a page back who said that it's not IB's problem, that these are your own issues are not their problem. I agree, except in a scenario like yesterday, or a scenario where for instance IB themselves have incorrect data. Is that your problem too - being auto-liquidated due to IB having incorrect data?
I occasionally use up my available buying power, even with portfolio margin - but not much anymore, without noticing it being so busy managing the positions, until I get a pop-up from IB at 3:40pm or so giving me that ten minute warning, "hey buddy, lighten up - you've got 10 minutes". Sure enough ten minutes later the appropriate amount is liquidated if I don't make sure to lighten up on some things. It's not a big deal, never a problem. So, I can confirm that in the past, during normal market conditions, I've never been suddenly liquidated on anything without warning.
I do not know if there are any conditions under which they will immediately liquidate. However, some clarification from management, factoring in yesterday's conditions would be very welcome, including reaffirming the 10 minute warning, and that they will never auto-liquidate prior to 10 minutes following a warning.
Keep trying. You are saying value of 119P is zero. Fine. Then the value of 114P is zero too. No? Are you saying there is a situation where Value of 119P is < Value of 114P?
Let's say you are 100% long a portfolio of blue chip stocks worth $1 mill, with no margin. A market crash happens like yesterday, so you sell an equivalent amount of ES futures to completely hedge your exposure. Then, due to stop-loss selling on electronic markets, the bids for all your stocks go to 0.01 and trade on a 1 lot. Your account equity is now about $1, and you are short $1 mill worth of ES futures - IB's system works out you don't have the margin requirements to cover your ES hedge, so it auto-liquidates you. It sells all your stocks at market, which could easily be 0.01 per share, and exits your ES hedge at the same time.
If the exchanges don't bust your liquidation sales, then IB has just wiped you out, despite you being fully hedged and having very little risk.
It appears to me that until IB removes its auto-liquidation system, or adjusts it to avoid ALL such dangerous, risk-increasing auto-liquidations at crazy quotes in fast markets, that it cannot be used safely by any trader for anything other than pure cash-only long stock transactions. Using even $1 of margin risks you getting blown out. Using even $1 of hedge risks you getting blown out. IB is dangerous in its present state.
I HAVE 2 IB IRA accounts only because I can day trade and avoid reg T. IB is the worst platform I have ever traded on. I also have a cash accounts at Trade Station and Scott Trade.
So although this doesn't effect me this is one of the few posts I have read recently that is a true public service and can save peoples entire portfolios. Good job well thought out and I appreciate bright people.
If the exchanges don't bust your liquidation sales, then IB has just wiped you out, despite you being fully hedged and having very little risk.
It appears to me that until IB removes its auto-liquidation system, or adjusts it to avoid ALL such dangerous, risk-increasing auto-liquidations at crazy quotes in fast markets, that it cannot be used safely by any trader for anything other than pure cash-only long stock transactions. Using even $1 of margin risks you getting blown out. Using even $1 of hedge risks you getting blown out. IB is dangerous in its present state.
I HAVE 2 IB IRA accounts only because I can day trade and avoid reg T. IB is the worst platform I have ever traded on. I also have a cash accounts at Trade Station and Scott Trade.
So although this doesn't effect me this is one of the few posts I have read recently that is a true public service and can save peoples entire portfolios. Good job well thought out and I appreciate bright people.
Nonsense. The SPY options are American style and can be exercised. That may be the market of last resort, but it was there.
The option spreads also have minimum value parameters based on the underlying. These parameters should have been recognized.
There are many illiquid option markets and just because there are no buyers, it does not mean that those options are worthless for valuation and margin purposes.
The SPY option market froze yesterday. It ceasesd to work. But that doesn't mean that the options became worthless, just like they don't when the market closes.
Had there been a problem with the underlying, then your point might be valid.
Portfolio margin would help, but probably not the OP's case. Correct me if I'm wrong, but I don't think PM offsets futures against stock just yet. You'd have to hedge with index options or SPY.
So 1 MM in stock and -1 MM notional in ES would still get you in trouble over the variation margin for the futures when the stocks headed down.
Theres a liquidate last feature. I guess you could mark all the stocks that way and let it liquidate the futures first.
I do think we need to hear from IB on this. I don't expect them to waver, but I would like to hear a clarification of how things work in yesterday's scenario.
So 1 MM in stock and -1 MM notional in ES would still get you in trouble over the variation margin for the futures when the stocks headed down.
Theres a liquidate last feature. I guess you could mark all the stocks that way and let it liquidate the futures first.
I do think we need to hear from IB on this. I don't expect them to waver, but I would like to hear a clarification of how things work in yesterday's scenario.
So for arguments sake, if at any time and for any reason(market makers walking away, glitches at broker/actual market, ultrathin market etc) the bid/ask goes to .01/1M, the short side could be liquidated by IB. If the trades aren`t or can`t be busted, you need the cooperation of IB.
The only way to avoid this risk appears to be cash account only.
The only way to avoid this risk appears to be cash account only.
No.
You are long one, short the other. So in one case, it's the BID that matters, in the other it's the ASK. As was documented in the other thread, even on options the bid-ask went to astronomical levels on some issues.
Come on, this isn't rocket science.
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