ameritrade is forcing me to cover a short

Discussion in 'Retail Brokers' started by 151, Oct 20, 2008.

  1. 151


    I got a "curtesy" call from ameritrade this morning. Seems that they are going to cover my -1000 shares of ford by the end of the day and charge me brokerage fees for it.

    The trouble is I want to be short those shares.

    On the 14th of October I paid 600 dollars for 10 3.00 option contracts (1000 shares). Originally I was protecting my longs but I changed my mind and sold the longs leaving me with the options.

    The options exercised sat. and I am short 1000 shares of ford at 3.00

    Ameritrade however doesn't have the 1000 shares and they are now in a naked short position.

    So they are trying to force me to cover my short at a loss.

    Not only do I not want the loss I do not want to cover period. Is it actually my problem they allowed themselves to get into a naked short?

    What would you guys do?
  2. If you know the rules, and you know you're getting assigned over the weekend, why on earth would you let yourself get into such a position?

    Consider yourself lucky if the pound of flesh they extract for your error is only a flesh wound, and move on.
  3. 151


    I am not sure I understand your reply. I had no idea that ameritrade would exercise my options if they were negative ford shares.

    Basically they took the 600 I paid for the options gave it to the writer of the options, then told me sorry you cant sell the shares.

    Then they charged me to cover the short.
  4. Yep, they can do that. It's their shares that you shorted.
  5. I'm pretty sure TD Ameritrade is under no obligation to cover your short on the Ford shares due to the expired option. The previous poster is right - you took a huge risk in letting your options expire and, by default, exercise on you.

    Better read the fine print to make sure - and close out your positions next time.
  6. GTS


    At what price are they forcing you to cover at? If they are doing it at market and you are short from $3 I don't see how that is a loss.
  7. He lost ~$600 on the options and maybe gained ~$400 on the shares. :confused:
  8. 151


    I understand that I am shorting shares held by another client of ameritrade.

    I still feel that ameritrade should not have offered the shares if they couldnt let me keep them.

    I still do not understand why you say I allowed myself to get in this position. I wanted to exercise the options and be short the ford shares.

    I originally was long 1000 F and I bought the options for protection.

    Then I changed my mind sold the 1000 shares and kept the options because they were in the money.

    It looks like shorting a stock at ameritrade is a bad idea anytime. SInce when another client of ameritrade sells the shares I borrowed I am forced to cover so that ameritrade isnt naked.

    Well by nature I want to short those shares when the price is falling and the other client that has the shares is going to want to sell.

    So pretty much anytime I short a stock I am risking a forced cover that is very likely.
  9. GTS


    Its sounds like you don't understand the shorting process nor options very well.

    If they hadn't exercised your options (because they didn't have shares available to short) and instead let them expire you would have lost the whole $600. Is that your preference?

    They have no way of knowing if they are going to have shares available at expiration to short when you bought your puts - and they have no way of knowing at that time if exercising the options is going to cause you to be short - as you said you could be buying puts to hedge a long stock position (which you were)

    Ameritrade didn't really have a choice in the matter, you need to read up on automatic option exercise rules.

    Don't dabble in things you don't understand.
  10. perhaps they are actually doing you a favor, and it is arriving dressed up as otherwise.
    #10     Oct 20, 2008