What was the DTE when you were assigned?
WSBers playing with fire and getting burned: NKLA hard to borrow early assignments on call spreads
- Thread starter blazespinnaker
- Start date
Reading comprehension is a thing, isn't it?
First, when I chose the title "WSBers.." I was referring to a group of high risk gamblers on a particular subreddit. You can familiarize yourself with the group on this rather detailed wikipedia page: https://en.m.wikipedia.org/wiki//WallStreetBets
It's quite the subculture.
Second, I won't opine beyond stating my bias on ETrade's liability here. I haven't had a chance to review the legal arguments in full on the above case I linked to. I do however invite anyone who wants to talk intelligently on this subject to start there.
OP from WSB confirmed this scenario and said he wasn't aware of the Borrowing fee:
"I ended up with $600 worth of fees doing a similarly stupid play. Borrow fee on this junk is like 6/700%. This guy probably sold deep ITM call spreads and was getting exercised on them immediately. Massive spread on the options so they get exercised for better fills via stock, you just get cucked when you dont have any BP to cover the actual assignment.
I know because I did it for about 15 contracts worth a week earlier, and got assigned on the short calls immediately at EOD after opening them. Ended up like short 1500 shares of NKLA, which were easily closed with the long leg of the call (ended up making about 1k due to a drop at the time and lucky fills, using tastyworks tho). Then couple days later smacked with the crazy borrow fee. He was prob collecting up to 95% of the spread in credit due to the crazy IV, with a small capped loss. In the end, dont sell deep ITM calls on shit with huge borrow fees, youll just get rocked"
"I ended up with $600 worth of fees doing a similarly stupid play. Borrow fee on this junk is like 6/700%. This guy probably sold deep ITM call spreads and was getting exercised on them immediately. Massive spread on the options so they get exercised for better fills via stock, you just get cucked when you dont have any BP to cover the actual assignment.
I know because I did it for about 15 contracts worth a week earlier, and got assigned on the short calls immediately at EOD after opening them. Ended up like short 1500 shares of NKLA, which were easily closed with the long leg of the call (ended up making about 1k due to a drop at the time and lucky fills, using tastyworks tho). Then couple days later smacked with the crazy borrow fee. He was prob collecting up to 95% of the spread in credit due to the crazy IV, with a small capped loss. In the end, dont sell deep ITM calls on shit with huge borrow fees, youll just get rocked"
Here's another -
This happened to me when trading on the Tastyworks platform. They didn't disclose that there would be a Hard to Borrow fee. I'm talking to an attorney Scott Silver of the Silver Law Group about it. He's experienced in these types of cases.
ESMA actually imposed some Rules regarding Liquidation within Europe, if your loss is >= Account size, Brokers should liquidate your positions. Guys in those threads should have been auto excercised on his long when the short leg excercised imo, since it was clear that the interest would be bigger than the account size. Fucking the little guy in this situation
That's the horrible part about it. I did have long positions that could have been exercised by my broker to result in much smaller of a loss. They just don't care. It could be that it's to their advantage to let the account go negative so they can charge interest.
Brokers manage risk all of the time on smaller accounts. They will go in and close out trades they deem to risky. If your buying power drops negative they will close positions to mitigate risk. They are required by law to have some oversight since they are the "expert" in the field.
The systems generally prevent you from taking any trades that could potentially put you negative. In my case the system did not show the stock as hard to borrow. I firmly believe the algorithm that deducts buying power (or prevents the trade from the start) wasn't built with this in mind and it slipped through the cracks. You can bet after all the lawsuits the brokers will face on this they will have it built in !
You filled out a disclosure agreement that said you understand the risks involved.
You should have understood the risks of hard to borrow stocks. Further, you should have researched the fact that the stock was hard to borrow.
A broker will stop you out if you exceed your allowed margin (something most users here complain about with Interactive Brokers), but it’s not their job to figure out if you position will lose or earn or put you under.