Danger of IB? True or False?

Discussion in 'Options' started by Option Trader, Dec 29, 2005.

  1. In as much as IB enables options to be exercised instanteously, the writer also has to reckon with midday assignments on that very day, so that if his account size is not big enough, and he is not there to rebalance the position himself, IB will handle matters on their own, which may likely mean dumping the long legs to the spread by day-end (instead of selling the stock and rebalanceing the position for you).

    Please verify if this is true.
  2. Assignment only occurs overnight, any short option that is closed by day's end cannot cause assignment.

    IB's system is fully automated, no human will "take a look" at your account to take the "logical "action. If you are assigned overnight however you have a certain period after market open (10 minutes or so, not sure) to take the appropriate steps yourself.

    This at least is my experience.
  3. Agreed that usually the assginments occure in an overnight random assignment procedure, but I was also told that a midday assignment could also occur and require action that same very day!?
  4. That'd be completely new to me. Is there any text you can post re. this? How can you be assigned midday? Could it be that you found out by midday that you had been assigned overnight?
  5. Maybe this is what is meant by IB eliminating the assignment fees and automating the process. Maybe someone else can give some input.
  6. def

    def Sponsor

    toronto, your posts point to liquidation and have nothing to do with assignments. Assignments take place over night, they do not take place during the day.
  7. Glad to see this confirmed! Nonetheless some helpful information in toronto's threads. Most important I think:

    - auto-liquidation procedures only involve selling or buying (to cover) securities, and no option exercise.

    - to *any* overnight short option, including a "covered" one, one should apply a "what-if-assigned" scenario. At least take precautionary action like "liquidate last" marks, better yet always examine the account before market open and be prepared to take necessary steps immediately (like exercise).

    def, let me just add that IB's low-commission business model is highly appreciated.

    Option Trader, your midday assignment seems clearly based on a misunderstanding.
  8. Def, glad to see you jumped on. After seeing this post I went through the TWS user's guide and could not find info on assignment, although I may have just not been able to locate. Can you please help with the steps for the following scenario when you have a moment?

    ex> Sell a front month ATM call option one for one for already purchased ITM call option (perhaps a few weeks prior) that is a few months out, "a legged into diagonal spread".

    Since assignment occurs overnight as you have stated, when and where do you see that you've been assigned? Do you have the choice to either close your short option position so that the stock will not be assigned (potentially roll over by selling an option for next month), or exercise your long option and sell at the short strike price to satisfy the assignment? At what time the next day must either of these occur, or is one of them not an option?

    Please let me know when you get a chance, thanks for your response.

  9. def

    def Sponsor

    If you short an american style option, you give the buyer the right to exercise his right to the underlying at anytime up until the ex-date. If you are assigned, you don't get a "free option" to say - sorry, I don't want that and I don't want the underlying.

    If assigned, the position should be reflected in the AM. At IB, if you don't have enough cash in the account to cover the margin of the new position, we'll liquidate the stock shortly after the open to bring you into compliance. (you usually will have some time to do it yourself).

    Without getting too much into option theory, once assigned, the best thing to probably do if you don't want the underlying is to sell (or buy) it back. As mentioned above, you can do this first thing in the AM if you don't have enough margin in the account.
    #10     Jan 1, 2006