Early Sale by Broker

Discussion in 'Options' started by Nine_Ender, May 16, 2010.

  1. I have an account with TD Waterhouse and ran into a problem where they started liquidating some positions at 3:30 pm without my permission that didn't expire until the next day. This cost me money on three occasions, the middle occasion I disputed in writing and told them I didn't want them doing this.
    Then the next month they did it again.

    Every month they post a message online stating that you have until 4:30 pm to inform them if you do not wish to exercise your options. Any risk associated with margin could only occur if the options were exercised which would require both myself and the broker to decide it was a profitable step. So my strategy was try to find a good sell price myself in the last couple of hours and often the best price late is in the last 5-15 minutes. Their actions always end up with a weak fill at an arbitrarily low bid price ( its like giving my money away ). And, I suspect, they may even be market makers on some of these options themselves.

    So my question is has anyone else encountered this problem and/or discovered the legal ramifications in this situation. My next step may be to write a letter to TD outlining the trades and what I intend to do if they don't compensate me. There is an ombudsman in Canada I believe these kind of cases might have more credibility now that the abuses of various insiders in the US system.
  2. They are not going to change their rules for you.

    You can tell them what you are going to do, but it's meaningless. You cannot win.

    What you can do is find out how to get them to stop. No threats. Just ask. Then decide if you can live with those limitations.

  3. Why not just call and give explicit "Do not exercise" instructions.

    OCC thresholds are 1 penny.

    So if you are long a call position on friday, even if it is OTM, call your broker and provide explicit instructions over the phone on friday morning.
  4. johnnyc


    read the options agreement you signed when you opened the account, there's a good chance you agreed to them doing this at that time.

    if they are a market maker then it should show up on the trade confirmation
  5. ptrjon


    "never a debtor or a lender be"

    I work for a brokerage firm, and the fact is that by carrying a margin balance- you give the firm freedom to sell your positions whenever they want to. Afterall, They are invested in them too. It doesn't make sense what they do sometimes, but they have the authority and the right- it says so on your account form with your signature at the end.

    Your options are unfortunately: stay or move to another brokerage :p
  6. The options were purchased on a cash basis no margin use was involved. I understand how a broker might want to cover their risk but this is more easily done simply by not exercising options for customers lacking suitable margin to do so.

    I suspect this is a gray area and so far no one who has replied to me really knows the rules. And the interesting thing is I think a lot of employees at these brokerages don't know the rules themselves. In fact, I discussed this very issue with an employee there one month and they went hunting for answers. After a long delay they told me yes I owned the securities and could sell them whenever I wanted to. I told him to put a request in to NOT exercise any options that day after hours on my account. Of course, this was not needed because I sold my securities by 4 pm as I always did.
  7. I received pretty much the same type of e-mail from Optionsxpress last night after I opened up a position with APPL options and carried them overnight.

    "blah blah blah... "usual stuff that they are informing me that they "Might" need to liquidate my positions if they went in the money and I dont have enough cash to cover the stock purchase if they were called.

    Did not make too much since due to the fact I BOUGHT the 240 May PUTS.
    Did not plan on holding them longer than needed anyway.
    I was able to liquidate them myself right after the opening for a nice return.

    My little lottery ticket paid off.
    Bought 20 May 240P @ .75
    Got rid of them at the open for 2.50