So I profited 820 dollars on a deep ITM options spread and received this email from Tastytrade

[taowave]

I share your pain

No. It's index. Can only be exercised at exp. They object to DITM spreads when an OTM equivalent spread is available which does not require an offset prior to the close. They MUST close him out before the bell or he will be holding the long option naked with no monies.

Doofus' doesn't cover before the close -> short leg assigned to cash -> he's got debit risk on 5 lot NDX. 5 lot. With a few hundred net liq. He could be carrying $100K in long premo.

I swear that I am done with you. Please Lord, let it happen.

 

[poopy]

Why wouldn't you trade the equivalent call diagonal? It's liquid, has the same payoff AND you can carry it through expiration of the short leg. No exp-related fees or forced-trade.

I suspect the offer is more than a penny so the dude won't pay up. He'd rather pay OCC fees.

 

[wxytrader]

OK, the reason that Chris emailed him is that it requires active participation by TT. They MUST cover it by the close at the market if he (OP) fails to cover the spread. It's that simple. What makes this maddening is that the fucking OP is too thick to understand what he's been told ad infinitum; that the equivalent call spread has the same payoff with NO requirement to cover before the close.

The system should reject the trade.

 

[wxytrader]

No. It's index. Can only be exercised at exp. They object to DITM spreads when an OTM equivalent spread is available which does not require an offset prior to the close. They MUST close him out before the bell or he will be holding the long option naked with no monies.

Doofus' doesn't cover before the close -> short leg assigned to cash -> he's got debit risk on 5 lot NDX. 5 lot. With a few hundred net liq. He could be carrying $100K in long premo.

I swear that I am done with you. Please Lord, let it happen.

Yeah I keep forgetting that because why are they sending him an email in the first place? It's a defined risk trade. As long as you can cover the spread should be good to go.

 

[poopy]

Yeah I keep forgetting that because why are they sending him an email in the first place? It's a defined risk trade. As long as you can cover the spread should be good to go.

It's undefined after the close. Undefined in the sense that the risk is many multiples of the net liq.

If he cannot limit out of the trade at 5.00 then he or TT will have to go to market. I saw an NDX 100 lot vert, 100-wide, with the short leg 300 ITM, trade at 68 on last trading day when the thing was worth 99. 100*3100. $310,000 lost on a market order. Was it busted? No idea.

The risk is undefined as the broker cannot allow the short leg to be assigned on the diagonal. They told him to stop doing it, he agreed to stop, and then he did it again.

Dude, I get it that you're new but you're the most stubborn individual I've encountered online.

 

[wxytrader]

It's undefined after the close. Undefined in the sense that the risk is many multiples of the net liq.

If he cannot limit out of the trade at 5.00 then he or TT will have to go to market. I saw an NDX 100 lot vert, 100-wide, with the short leg 300 ITM, trade at 68 on last trading day when the thing was worth 99. 100*3100. $310,000 lost on a market order. Was it busted? No idea.

The risk is undefined as the broker cannot allow the short leg to be assigned on the diagonal. They told him to stop doing it, he agreed to stop, and then he did it again.

Dude, I get it that you're new but you're the most stubborn individual I've encountered online.

There is no assignment on spx or xsp or whatever. The risk is the spread.

 

[poopy]

There is no assignment on spx or xsp or whatever. The risk is the spread.

You don't understand any of it. I'm putting you back on block.

 

[poopy]

For those of you I haven't blocked. The risk is more than the req on the spread. It's the eventual cover at whatever price can be achieved to avoid assignment on the short, and the naked long put remaining after assignment. The assignment in itself isn't the risk, but the 5 lot long put that remains. All if this can be avoided by buying the synthetic position in the call diagonal to open a position.

 

[newwurldmn]

For those of you I haven't blocked. The risk is more than the req on the spread. It's the eventual cover at whatever price can be achieved to avoid assignment on the short, and the naked long put remaining after assignment. The assignment in itself isn't the risk, but the 5 lot long put that remains. All if this can be avoided by buying the synthetic position in the call diagonal to open a position.

Correct.

Prior to the first maturity, the risk is just the spread.
After the first maturity, the risk is a naked long DITM call option (massive delta risk) and OP has to come up with cash to settle the short option.

TT can't guarantee that the OP will close the trade prior to the first expiry; nor does TT want to babysit his 5 lot.

Anyone who thinks that TT should be auto-liquidating is likely the same person who will complain about IB's aut-liqudating bot which ensures you get the worst fills at the worst time imaginable.
Anyone who thinks that TT should be preventing the trade is likely the same person who will complain about brokers not letting traders trade.

 

[poopy]

He's in the ps. He's debit on the assigned put cash req and long the D2 put.