Danger w/ certain brokers for (outstanding) LEHMQ vertical spreads?

Discussion in 'Options' started by Option Trader, May 26, 2009.

  1. On LEHMQ you can only sell closing positions, hence there is not much competition on certain ask prices to sell.

    Question: If a person had bought (i.e. before the bankrupcy) the 20 calls for LEHMQ with Jan 2010 expiration, and sold the 25 calls, currently: the 20 calls are selling for 1 cent, and the 25 calls (because there is no competition on the selling end) are selling at $2.00! (The 35's are selling at $5!). Will this not cause some broker valuations to go bonkers and cause people margin calls or intraday liquidations?
  2. The 25's are NOT 'selling for $2.
    That may be the ask price, but they are not trading at that price.

    If you own this spread, just ignore it. It will go away. there is NO risk and no broker will have a problem with your owning it.

    If you fear bad 'marks' may result in a margin problem, why not call your broker, express your concerns and see if they have a solution.

    One solution would be for them to take the position off your hands at a price of zero - hopefully with no commission charge. Ask them to do this.

    Another possibility is for them to tag your account - so that in the event of a margin call, they would first verify if the LEH position cased that margin call. Then they would cancel it.

    I don't believe you have a problem, but no one here can tell you what your broker would do if your fears come true.

  3. Sell the 35s at $5 to the limits of your account... The req is the strike-diff less the credit, and no broker is going to mark it differently.

    Don't worry about it.
  4. Thinkorswim intraday showed the account value as negative millions--and their computer would block trades. IB and TOS value the account based on the average price between bid & ask. IB has auto-liquidations!
  5. IB is very unreasonable when it comes to liquidations.

    So it it will make you feel better, speak with them, now. Before it becomes a problem. Make sure they see that your position is riskless.

    Again, ask them to take the trade off your hands at zero premium and zero cost. All they do is refuse.

  6. I asked Thinkorswim, but it seems they don't offer this service you mentioned of taking it off one's hands. Where did you hear about such a thing?

  7. I never heard of it.

    It's a service that a good broker should do for a good customer. After all, the position can never lose money - and if the customer were to face liquidation do to the situation you described, there's a reasonable chance that the broker would lose in an arbitration dispute. It would be to the broker's advantage to avoid such a situation.