What time does IB auto-liquidate exp. day ITM options -Excess post expiry

Hi. I have a newbie question about assignment and exercise specifically with IB. If I have QQQ
call spread 105/107 with 1 hour to go till expiration and QQQ trading at 108. Instead of selling the vertical by hitting the bid which might be like 195 , would I be better off just letting the 107 get assigned and having my 105 be auto exercised so I don't lose the spread on trying to liquidate the vertical manually? I've always traded options with days before expiration and never till so I'd appreciate hearing from experienced expiration traders here . Do you guys just let the options net out thru assignment and auto exercise? I believe IB does not charge fees for US assignment and exercise. Thanks
 
In your example, I would usually go with assignment and auto exercise. The problem comes when the underlying gets close to the strike of one of my positions near expiration. Then I prefer to close the option if I can at a decent price.

If in your example the QQQ was 106 at expiration, I would probably short the stock in anticipation of auto exercise because the stock is usually more liquid than the option. I see no reason to fear expiration, but be sure you know the rules.
 
To the original question, I've been autoexercised on Thursday for ES options expiring Friday. They can and will do it whenever they want.
 
Sig said:
To the original question, I've been autoexercised on Thursday for ES options expiring Friday. They can and will do it whenever they want.
More...

From the IB site... CAPS are mine.

"To protect against these scenarios as expiration nears, IB will simulate the effect of expiration assuming plausible underlying price scenarios and evaluating the exposure of each account assuming stock delivery. If the exposure is deemed excessive, IB reserves the right to either: 1) LIQUIDATE OPTIONS PRIOR TO EXPIRATION; 2) allow the options to lapse; and/or 3) allow delivery and liquidate the underlying immediately thereafter. In addition, the account may be restricted from opening new positions to prevent an increase in exposure.

IB also reserves the right to LIQUIDATE POSITIONS ON THE AFTERNOON BEFORE SETTLEMENT if IB’s systems project that the effect of settlement would result in a margin deficit. To protect against these scenarios as expiration nears, IB will simulate the effect of expiration assuming plausible underlying price scenarios and evaluating the exposure of each account after settlement."

It sounds like IB has two separate scenarios;

1) Excessive exposure
2) Post settlement margin deficit.

If they determine that you under #1, it sounds like they can liquidate at will. Under #2, it looks like you're good until the afternoon of expiration day.
 
My situation was 100 percent scenario 2. I had ES option debit spreads, so I'd paid the max exposure on opening plus I still had plenty of margin left, but not enough margin to take delivery of the actual ES futures. I pointed out the page you referenced to the customer service rep at IB because I too thought I was safe until "the afternoon before settlement" given that the web is seems pretty clear to me, however they refused to acknowledge my point about the web page and simply kept repeating that "the algorithm" determined I needed to be liquidated and there was nothing to be done about it. Short term solution was to switch to SPX cash settled weeklies, longer term was to stop using IB.
 
That sucks. I guess I've been lucky so far.

Every now and then someone breaks through to a real person at IB that can explain what happened and why with these kinds of things. I think the rest get stuck with cust service citing "the algorithm" and that's the end of it...figuratively and literally.

I'm still doing heavy ES option duty right now and haven't looked at SPX in years. Are the SPX weeklies electronic on IB? And do they get 60/40 tax treatment like ES?

Last time I looked at SPX, they were pit/electronic but the electronic part was thin and there was no overnight etc...
 
ktm said:
That sucks. I guess I've been lucky so far.

Every now and then someone breaks through to a real person at IB that can explain what happened and why with these kinds of things. I think the rest get stuck with cust service citing "the algorithm" and that's the end of it...figuratively and literally.

I'm still doing heavy ES option duty right now and haven't looked at SPX in years. Are the SPX weeklies electronic on IB? And do they get 60/40 tax treatment like ES?

Last time I looked at SPX, they were pit/electronic but the electronic part was thin and there was no overnight etc...
More...
There are two types of SPX. The weeklies/PM settled settle at 4:00 on Friday and have about the same liquidity as ES. I am almost always filled 5 cents past the mid if there are market maker quotes on both bid and ask (if a retail order is inside the market maker bid/ask its harder to see the "real" mid, but you can usually do the opposite spread (call vs put) and do the math to figure it out). IB usually routes 10 contracts or less electronically for spreads, although randomly they cut that down to as low as 5. If they don't route you electronically, you won't get the mid fill and will have to cut your order size down until it falls below whatever their cutoff is at the time. You know they're doing this when your order switches to green but doesn't show up on their bid/ask quote.
They do get 60/40 tax treatment. The only thing to remember is that they settle on spot where ES settles on the futures price, so their is a delta between the two except on the ES underlying settlement week. And they do settle in cash, so there is no pin risk or worrying about taking delivery of the underlying future. Just make sure you've got the spx weeklies or spxpm, not spx which settles on the opening of each component stock on Friday and is entirely different animal than ES.
 
Thanks Sig!

Hopefully they will go all electronic soon and the number of routable contracts will increase. It sounds like SPX weeklies are coming along nicely though.
 
Thanks rwk. I guess the questions on exercise/assignment get more tricky if lets say QQQ is at 106.95 - 107.05 with 2 min to go and you are sitting on a 105/107 long vertical. I would think the 105/107 vertical mkt would be like 190/210 so I'd be giving about 7 ticks of edge from intrinsic? Any other suggestions on how to lessen that 7 ticks vig? Can I short 100 sh of QQQ againt my autoex of 105c and just buy the 107c short back? easier said than done if QQQ starts whipping around 107.
 
MushinSeeker said:
Can I short 100 sh of QQQ againt my autoex of 105c and just buy the 107c short back?
More...

Yep. QQQ (and SPY) should be freely shortable and this is a common strategy to avoid paying the vig. The position is basically locked down at that point (sans random flash crashes).
 
You must log in or register to reply here.
Back
Top