jayre, did you check the other factors which may cause liquidation which are not realted to reg-t margin requirements, as I noted in my message? It may be the reason for your liquidation (and not any reg-t margin issues).
At the time of this "distorted" market was the cost of exiting the positions that you have create a neg balance in your account? If so, there is your answer. Yes there could be an arbitrage...but so?
Was there any risk for account/broker to leave the spread as is, or was it necessary to liquidate & create arbitrage? (unless the broker is on the other side)
I assume yes, the OP isn't giving details so this example might explain it: Stock @ $20 OP expects big move to $75.00 Account balance $1200.00 Buy 100 contracts 65C @ $0.10 (ask) Sell 100 contracts 75C @ 0.05 (bid) Debt $500.00 Stock makes move to $28.00 IV gets all wacky 65C @ 0.15 (bid) 75C @ 0.30 (ask) To close the position at that time would be to sell the 65 calls for $1500, buy back the 75 calls for $3000.00. 1500 - 3000 = -$1500.00. The computer sees the negative balance and triggers the margin call.
No matter how the computer reads it the spread is covered & max risk is the debit paid as long as the spread is in place. It would have made sense the broker should not let me "exit" the spred, since exiting the spread could create risk. So unless the broker was on the other side of the trader they have not acomplished "anything" with liquidating the spread, just made things worse. Can we agree on that?
Yes I do. Also can we agree that an account with a balance of $800 should not be automatically assigned $448,000 worth of GOOG stock only to be liquidated the same day for a loss of $10,000 to the account holder? http://www.elitetrader.com/vb/showthread.php?s=&threadid=51251 IB works in odd and mysterious ways at times.
No risk for the broker. But so what? What is the liquidation policy? At that moment, your account was theo neg, so you got liquidated. Seriously I dont understand why you are so confused. You are right there is no risk to the broker by letting you hold your position no matter the market conditions. But its clear your broker has a liquidation policy that is based on market conditions. So I am sorry to say, that this is on you. You have to know that this is a risk. If this was IB, you could have called them and got a no liquidation status on your postion.
If IB (or equivalent for another broker), file a formal complaint in the trouble ticket system. This is a separate category and is a prerequisite in any case to going to arbitration. This is not the same thing as opening a trade issue ticket which you have likely already done. It goes to a separate department. Many times they will adjust if you do as I suggest above.