WTF? Down 15k on huge option mispricing. Can someone check please

Tomaz26 said:
I think I am going to be the next one leaving IB.. I mean this is not the first time I almost had I heart attack. A few months back I woke up to an e-mail, your account is down 40.000$.. I had some short vol trades on, but nothing of that size or magnitude so I tought maybe I made a fat finger mistake and sold 1000 instead of 10 options or what.. I logged into IB with shaking hands to see what the fuck did I do this time, only to see my account in green.. Turns out I was not the only one because on that day a lot of customers got such emails, was a thread here on ET also on that day if I am not mistaken.. So I guess they try to take me to early grave or what..

Btw I tried to do what you said, put a closing order for my short puts at some low price and it still shows a biiig red minus in my account. A bit less than before, now only -11.000 USD but still. And I sold some locked winners (options) to free margin in case this goes down from -15k to -40k or something. Guess they wont cover this lost profits opportunity for me..
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You actually need to do the opposite, put in an order to open 1 more option the same as you already have. That makes "The Algorithm" think that there is a buyer out there for your options at a better price then they think exists now. It's a bit tricky because you don't want it to actually execute, but it has to be close to market then the current best print.
 
I'm not sure if this is related to IB, since these options are so illiquid that no one trades them (or because no one trades them). So what do you expect other brokers to do with options that no one trades and therefore you cannot know how other brokers may show P&L for them?

IB (and other brokers) may not be able to determine what those prices may be.
Even nearer-term 3-month CL options have huge price discrepancies all over the place on the options chain:

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While for those 1-year illiquid options I can set any bid & ask prices I want (personally as a retail trader) and mine will be the only prices you may see and my bids will determine what's on your P&L. While there is no arb opportunities on options that no one trades.

I don't know what may happen at other brokers, but no one has experience with illiquid options that almost no one trades.
All options guides, books, trainers, etc - advise not to trade illiquid options. When you do, you're the only one trading them and therefore you're on your own.

Though in your case, I don't think there is a big cause for concern yet, because you should be able to get in & out near reasonable price or generally an average mid-price between similar options, because some market makers will pick your orders. You may just lose a lot on slippage.
 
zdreg said:
I would confirm the validity by contacting the firm.
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I have opened a ticker. Could not reach them by phone, tried online chat only to get: a representative will be with you shortly for 15 minutes, tried 3 times.. I then opened a ticket, but do not expect a reply in a few months.. The last time I opened a ticket, it did not get reviews and replied in a few months, so I just closed it.. It was not an important one, but still.
 
PoopyDeek said:
When you wanna scratch the itch to short CL vola.... buy it instead.
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Also as you are more of an expert in this field. Who quotes IV. This IV increase from 50 % to 370 % is not done by IB in this case, or? Also I checked IV on 14 days option on CL and it is the same. 370%, then goes down each month and 1 year out it is arround 50 %.. It looks like someone prices IV the same for 10 month option as for weeklies.. But who does that? There were no transactions done. So either CME mistake or IB or...? :)
 
Tomaz26 said:
Also as you are more of an expert in this field. Who quotes IV. This IV increase from 50 % to 370 % is not done by IB in this case, or? Also I checked IV on 14 days option on CL and it is the same. 370%, then goes down each month and 1 year out it is arround 50 %.. It looks like someone prices IV the same for 10 month option as for weeklies.. But who does that? There were no transactions done. So either CME mistake or IB or...? :)
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CME is interpolating vols. I would hold until tomorrow and see what they're showing. Never short naked vol in CL. A spread isn't as sexy but the vols will be in-line and skew will benefit your wing.
 
Tomaz26 said:
Also as you are more of an expert in this field. Who quotes IV. This IV increase from 50 % to 370 % is not done by IB in this case, or? Also I checked IV on 14 days option on CL and it is the same. 370%, then goes down each month and 1 year out it is arround 50 %.. It looks like someone prices IV the same for 10 month option as for weeklies.. But who does that? There were no transactions done. So either CME mistake or IB or...? :)
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Dude pls...reading posts like that tilts me off of the face of the earth.
IV is not quoted, it is calculated. Are you 100% sure you know what you are doing here?
Because you just shorted a one year option that is basically only quoted by using no arb criteria.

Do you know how insane the vega is for options with 1 year term? It doesn't need a lot of movement in the vol term structure to blow this thing out of the water. In addition you have not only delta, vega and gamma risk, you also are exposed to the forward curve...for an entire year!!! And you are naked short...a put!!


I absolutely highly suggest you stress test your position*. Otherwise you'll end up being the next nuked account meme at r/wallstreetbets.











*and since you probably don't know how, just put in an order to get out with a small loss or at even


Holy crap...people can be so stupid sometimes
 
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I am holding, thats for sure. Until the end if necessary. If they dont increase it to 1900% and liquidate me that is.. Never thought I would see something like that.. I think you would be able to take advantage of that, or? Maybe with diagonals or something. If 270 days to expiry is still at 50% IV and so is 330 days, why the hell would 300 days be such an exception.. I know some ETFs like DBO hold underlaying futures in that expiration, but doubt that has anything to do with it. They will roll out in due time and currently no reason to have such wild IV that far out.. I mean I would certainly like to sell those 20 puts today had I not sold them yesterday. Could make some $$$, but I doubt anyone would sell them to me for that IV :) So this is what bothers me.. If IB can just quote any IV without any actual transactions being done, then they can really liquidate acounts left and right. Had I sold 10 puts yesterday they would liquidate me today and then tomorrow pricing could go back to nomal, me being wiped out.. If this is how this works then I guess it really is hard to come out on top :)

Guess I have to learn everything the hard way :)
 
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