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

[MrMuppet]

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

IB DOES NOT QUOTE IV!!!!! THEY CALCULATE IT OFF OF THE QUOTES! Good lord.....

 

[Tomaz26]

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 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 know vega being that far out is big, but the weighted vega should not be that big. Yes, curvature moves all the time, but in this case it moved in my favour. Also what puzzles me same option showed profit during most of the day today. So something must have changed in 1 hour to go from green to deep in red.. Yes, no liquidity means shitty prices, but still something that big is... And yes I know IV is calculated, black sholes or so, but then how do you come with this IV all of the sudden. From 50 to 370 while underlaying went up by a few % points and nothing changed with underlaying while this took place.. Also if curvature would be to blame then all other options would be quoted like that..

Will try to close position tomorrow even if for a small loss, but currently I have to take a big loss if I close the position which I am not sure would be wise. Then if pricing goes back to normal a day after I will just have a huge realized loss ...

 

[Overnight]

It was more of an directional trade.. A bet that crude will not trade that low (below 20) in one year.

This is what I do not understand about options...You sold someone the right to sell something a year later, with unlimited risk. You could have the barrels put to you.

If it is a directional trade, and you feel it will not go below 20, and in fact would be higher by then, why not just buy some deep OTM calls at that same strike, expiring a year from now? You spend a bit to lock yourself in, and if it is wrong, oh well. But if it is right? Exercise it and WHEEE!

 

[Tomaz26]

Out of all 4 positions now with a 1k profit instead of 15k loss. Although I still think it is a good trade, but with such shit going on I chickened out.. Could wake up tomorrow to see this is now trading in IV of 2000% and IB sold me out of positions.. I am not playing this game

 

[Tomaz26]

Thanks to all for help. Sorry for some stupid questions / comments, but this was stressfull to say the least..

 

[Overnight]

Thanks to all for help. Sorry for some stupid questions / comments, but this was stressfull to say the least..

Are you going to make the same mistake tomorrow, or next week? Next month? Gonna' sell naked puts in energies, which blows up most people?

 

[Tomaz26]

This is what I do not understand about options...You sold someone the right to sell something a year later, with unlimited risk. You could have the barrels put to you.

If it is a directional trade, and you feel it will not go below 20, and in fact would be higher by then, why not just buy some deep OTM calls at that same strike, expiring a year from now? You spend a bit to lock yourself in, and if it is wrong, oh well. But if it is right? Exercise it and WHEEE!

Well if you sell put it just leaves you soo much more room to be right. And you know how good it feels to be right.. I could earn 10k with oil droping 50 % from where it trades now, theta works for me. Sure vega works against, but I was not planing to hold this till expiration and am fairly convinced oil will be at least 30$ in a year. But the problem is those futures one year from now already are at 30$.. So no way for me to just buy cheap calls as I think CL is failry priced down the curvature.. Could go to 40$ and more, but with end of 2021 pricing already trading at 35$ there is not much room to make money.. Where I did see oportunity is to just sell 20 put 300 days out.. Yes curvature will move up and down, but I expect it to move mostly up, to narrow the huge contango and production cuts and economy reopening should make sure we do not see CL at 20 in one year as no one makes money at that price.. But ok I could be wrong, there could be more lockdowns down the road etc etc...

Turned out fine, learned a new lesson.. I doubt I will have much to do with options going forward as I see I am not good enough for this game.. Should have taken notes from the chapter in the book where PoppyDeek wrote that he advises against them for retail

 

[narafa]

@Tomaz26 You are probably being cornered. You sold the 4 puts yesterday and that was all the volume done for the whole of the day. IB must value your position through their algorithm. The algorithm details are not known, but it uses a series of prices in order to value your position as accurately and realistically as possible. The algorithm is a large series of IFs, If the security is very liquid, it will use the last price, moderately liquid, it will use the mid-point between Bid/Ask, illiquid, it will use the Ask price if there is one. If there is no Ask price, they will have to derive a proper price to value the position (In the case of options, they will interpolate), if there is an extremely wide bid/ask, they will derive another interpolated price and compare it with mid-point and value at the worst of them to your position, and so on.

The ultimate goal is to ensure that your position is valued at the most realistic price possible.

There is someone on the other side of your trade. In a very illiquid instrument, it doesn't hurt to try to knock you off by trying to trick your brokers' algorithm to force a margin call & consequently an auto-liquidation.

You must take this into consideration when placing the trade, you will need capital to protect your position against such practices, or you will need to have an offsetting position, either in another option or in the underlying.

 

[Tomaz26]

Are you going to make the same mistake tomorrow, or next week? Next month? Gonna' sell naked puts in energies, which blows up most people?

For sure not next week. Next month? Probably Nah, I think I am done with options.. Some $$$ here and there, but too unpredictable. Sold some crazy priced ES puts on 1600 level when market was at 2200, only to close them a few days later for a chump change compared to where markets are now.. So my experience really is that you pick pennies, and good for me there was no big steamroller yet so I should quit while "ahead"

 

[Tomaz26]

@Tomaz26 You are probably being cornered. You sold the 4 puts yesterday and that was all the volume done for the whole of the day. IB must value your position through their algorithm. The algorithm details are not known, but it uses a series of prices in order to value your position as accurately and realistically as possible. The algorithm is a large series of IFs, If the security is very liquid, it will use the last price, moderately liquid, it will use the mid-point between Bid/Ask, illiquid, it will use the Ask price if there is one. If there is no Ask price, they will have to derive a proper price to value the position (In the case of options, they will interpolate), if there is an extremely wide bid/ask, they will derive another interpolated price and compare it with mid-point and value at the worst of them to your position, and so on.

The ultimate goal is to ensure that your position is valued at the most realistic price possible.

There is someone on the other side of your trade. In a very illiquid instrument, it doesn't hurt to try to knock you off by trying to trick your brokers' algorithm to force a margin call & consequently an auto-liquidation.

You must take this into consideration when placing the trade, you will need capital to protect your position against such practices, or you will need to have an offsetting position, either in another option or in the underlying.

Thanks. I think I was played too. I knew this was very iliquid when I sold them yesterday, but there was already quite big open interest with 1.000+ 20s being sold by others before me. I checked some earlier and further out expirations which had 0 OI so I avoided those and I also avoided strikes without any VOL. But I never expected something like that could happen. Really. It now looks to me exactly the way you describe it. Something similar to stop hunting but in this case margin call hunting.. Just price option with some crazy bat shit number and algos will do the rest and force liquidation on accounts.. I do not want to know at what prices IB would liquidate me.. Now when I closed the trade, I did it at 1.85, and ask was 12 I mean if they would sold me out at 12, I would have 40.000$ loss not 15k one.. Shiiiit. That is why I think it really is time for me to stop this shit.. Go directional only and forget about options as I am clearly not cut to survive in this game...