I am almost certain IB is incorrect and that put options may be exercised. Of course, once exercised, the shares will not be borrowable and the customer will be forced to buy in the short. At least they allow customers to buy puts. E*Trade apparently forbid that (as least for last Friday, expiration day). I posted an objection to IB's actions on my blog:http://blog.mdwoptions.com/options_for_rookies/2008/09/opinion-madness.html Bottom line: I think IB adopted a CYA attitude to protect themselves from problems. Mark
IB's rule seems to outlaw buying a Bullish call vertical !!! Buy 100 BAC 30 calls. Short 100 BAC 35 calls. According to (NA2), this is not allowed because the 35 calls are uncovered. Nobody took 5 minutes to think. This is absurd.
The exception for derivative money makers has been extended and new rules added. See RELEASE NO. 58611 http://www.sec.gov/rules/other/2008/34-58611.pdf Page 4 "... a market maker may not effect a short sale in the Covered Security if the market maker knows that the customerâs or counterparty's transaction will result in the customer or counterparty establishing or increasing an economic net short position (i.e., through actual positions, derivatives, or otherwise) in the issued share capital of a firm covered by this Order...." IB is probably more on the safe side with rule (NA2). I guess, it is not that easy to program their system for the new rules on such a short notice. Still better than Etrade restrictions, I would say.