glitch and madness in IB auto margin check/liquidation?

Discussion in 'Interactive Brokers' started by NoMoreOptions, Sep 24, 2003.

  1. Position example:

    Stock XYZ: 100@$20.0
    Call on XYZ at $10: -1@$10.2
    Margin usage: 75%

    If in extended hour stock drop 50% to $10.0 (maybe just bad quote or IB don't know correct quote), because XYZ option market is not open. IB will liquidate your stock positions? Then when the regular markets open, XYZ shoots back to $20. Aman....

    If it is true, this is one of the most RISKY and INSANE situation I've ever want to see.
  2. Eldredge


    I have never had a liquidation when the regular market is closed for equities. Unless something has changed, that will never happen. I have never been in a position to have a margin liquidation in derivatives, so I am not sure about that, but I think it is the same.
  3. Ignorance is a bliss. Or you know and you make sure what you are doing is abolutely safe with IB. Well, the chance is that you don't know...

    Check IB forum. Similiar auto liquidation in extened hours did happen.

  4. Eldredge


    Maybe something has changed, I haven't been in a position to be liquidated for a while. I have on several occasions in the past been in a position that qualified for liquidation after hours and was never liquidated unless I was still over-margin the next morning after the open. Even then, it was always about 15 minutes after the open that I was auto-liquidated. Could be different now though. I would look for something directly from IB if you are going to be in this position. Good luck.
  5. CalTrader

    CalTrader Guest

    Auto liquidation in extended hours trading ? Hmm .... I suppose it could happen. Why would this be unreasonable ? You have a position, the markets moves far enough away to violate your margin reserve requirements: your position is liquidated. End of story.

    DEF speak up !
  6. def

    def Sponsor

    I didn't read the post on our forum and really need to log off for the night.....

    under normal circumstances we do not liquidate after hours - especially US equities. however, when there is a large overnight move which is clearly not due to a lack of liquidity, we reserve the right to liquidate positions should the account fall into deficit or under maintenance margin requirements. the timing and entry of the liquidation would naturally be at the brokers discretion. I know of one case the other night and such cases are definitely few and far between. the liquidations were done manually and sent into a very liquid and active overnight market.

    edit: before someone tears apart my statement, please refer to your account agreement for further details or any clarifications.
  7. Since it would be insanely easy to manipulate the price of many stocks quite a bit lower after hours, I doubt if IB would automatically liquidate stock. I should hope not.

    However, if a co. warns or there's some event that cuts its price in half or worse, who knows.
  8. The short answer is: Make sure you have enough margin so it doesn't happen.

  9. My, 10 to 1 shot, IB staffs will go ahead to liquidate positions in my example. Just look at all these replies.

    This is a deep in money covered call, boys.
    If the stock goes down 50%, the call value should be recalculated rather than using the close price...

    Gee, it is just madness
  10. First, if you have a covered call with exercise price of 10 written against the stock, the stock would NOT be valued at 20. It would be valued at 10. Therefore, a drop in after hours from 20 to 10 would not affect the market value of your margin account, nor would it generate a margin call.

    Likewise, a move in the stock from 10 to 20 with a covered call with exercise price of 10 written against it would not generate excess funds, buying power, market value, etc.

    No madness at all my friend. Would suggest you familiarize yourself with the workings of margin and option transactions.

    #10     Sep 25, 2003