It liquidated individual legs, leaving many loose ends, which definitely affected the delta. More importantly, I will explain clearly what I was referring to, as follows: 1. The "net liquidation value" is an average between the bid and ask. 2. The gross position value (GPV) refers to the market value of each of the individual legs in the portfolio, both long and short. 3. If the GPV exceeds the net liquidation value, by a 50:1 ratio or more, the system goes into auto-liquidate (so we found out). 4. Liquidation occurred as individual legs which were sold at market, which meant they were sold at below net-liquidation value. 5. E.g. Selling an individual leg at market for $.10 below the net liquidation value, means any option priced below $5.00, doesn't help the situation rather FEEDS the problem, as the ratio may change from 50:1 to maybe 53:1, which is what happened here. That means the customer is damaged, and the job of decreasing the broker's "risk" was not achieved, rather his "risk" increased. 6. Overall, the ratio stayed close to 50:1 quite constantly, and nothing was being achieved. 800 plus options were liquidated, (instead of 100 properly selected ones) and it started at-it again the next business day. 7. Conclusion: the software is/was not programmed to solve leveraging problems, albeit it's what being used for all problems. The software must identify the highest priced options to be effective. Here, 100 options could have stopped the problem instead of 800. (I may be on a tight schedule for a couple of days).
To Jimrockford: I think the difference is between liquidations for margin (the mass majority of cases), versus liquidations for other reasons. IB says the software is skilled specifically for the former. Taking responsibility for the latter and in for the unusual situations of the former, is the theme of thread--as when it acts improperly, its brutal. Trust me.
If you are this unhappy with IBs options policy why not just find another broker? It just seems stupid to me to keep doing something one is unhappy with when the solution is just to do something else. Don't you think?
My last question/post on this thread. What you're stating is that after the IB auto-liquidation you were left with positions other than boxes? You can answer yes or no.
Exactly. Supposedly when choosing a broker, one would do one's DD and weigh the trade-off's between service/supprt and price, etc. IB is what IB is, doing business on its one model. So you either live with it or leave it. A better question to ask to start the thread is: what did I learn from this amazing story?
As this might be of relevance to some people, this is what IB salesman said when the positions were all alive: "IB will logically reduce parts of your position in liquidation so that the position can be carried and margined correctly. Basically, the system begins to liquidate but is very careful not to worsen the account----it does a really good job of liquidating those positions that will allow for margin compliance in the least disruptive manner. Thus, it wonât just liquidate things to close things out; it runs a check first to ensure the order being sent by the system is margin reducing----the contracts that will be liquidated are totally dependent upon the total make-up of the portfolio." When the liquidations occurred, the IB salesman didn't himself understand, till someone in higher management said that the above software intelligence applies ONLY by margining issues.
...here, because the liquidations occurred because of leverage, it ignored leverage issues, and corporate saw that it MAY also have been ignoring margin issues.
It took the salesman about 20 e-mail exchanges before getting the account. The problem occurred because the salesman himself did not know about leverage limits, and I don't think 90% of the people viewing this thread understand anything about it.