A vertical call debit spread triggers a margin call. Does that shound right?

Discussion in 'Options' started by jayre, Aug 9, 2011.

  1. I agree with what you said. Does your broker?
     
    #51     Aug 12, 2011
  2. jayre

    jayre

    Time will tell, will keep you updated.
     
    #52     Aug 12, 2011
  3. FSU

    FSU

    Here's how it can happen. You are long an oex 500 put and short the 495 put. (This is a single listed product so easier to happen)
    The 500 put market on the close is .10 -.30. The market on the 495 put is 0 - 5.00 (the market makers have pulled their standard quotes at the end of the day to avoid getting picked off. They make the widest possible market) Your long gets marked at .20 and your short gets marked at 2.5 (the midpoint of the last quoted market.)

    Your long spread is marked at a 2.30 credit.
     
    #53     Aug 12, 2011
  4. zdreg

    zdreg


    why don't you mention the "supposed" broker then.
    there are a lot of paranoids on ET.
     
    #54     Aug 12, 2011
  5. zdreg

    zdreg

    the same day or the next day?
     
    #55     Aug 12, 2011
  6. jayre

    jayre

    Ok, but that dosent mean that there is any risk for the account or for the broker. The spread can either be hold thru expiration since you are fully coverd, or you can sell your debit spread for atleast 0 in any normal functioning market.
     
    #56     Aug 12, 2011
  7. zdreg

    zdreg

    you didn't answer when the forced liquidation took place. the same day as the misquote before the close or the next day.
    since you don't answer the question there is probably more to the story than you have presented.
     
    #57     Aug 12, 2011
  8. FSU

    FSU

    Absolutely agree, but the broker may have a policy of auto liquidation if the account has negative equity. One would hope there would be a manual review of the positions involved.
     
    #58     Aug 12, 2011
  9. joneog

    joneog

    As a hypothetical, let's say OP decided to leg-out of the spread by selling the long-call but didn't have the margin for the short call. Would the broker reject the sell order or would they fill it and issue a margin call \ liquidate the short @ the offer?

    If it's the latter, the account could theoretically have realized negative equity, and what the broker did makes plenty of sense. Maybe they are just trying not to underestimate the stupidity of their clients?
     
    #59     Aug 12, 2011
  10. jayre

    jayre

    The order would have been rejected is the answer. Can't see any reason, unless the broker benefited in some way from the liquidaton.
     
    #60     Aug 12, 2011