IB margin and expiration?

Discussion in 'Options' started by KPS21, Mar 16, 2007.

  1. KPS21


    I have a margin account at IB. I own about 180 in-the-money put contracts in SPY that expire today.

    Over the weekend, presumably, these (deep) puts will auto-exercise. My account will then instantly be "out of compliance" in some way with respect to Reg T overnight. I will suddenly be short $2.5mm in SPY stock.

    On monday morning, my plan is to buy back this short position. My question is, will IB do something to liquidate my account before I even get a chance to cover the short at, say, 9:31am on monday? I also don't mind if they buy it back for me. I just don't want anything weird to happen while the market is closed.

    Also note: I can't buy the stock now, since at 3:55pm, IB will "think" I am massively overmargined overnight (Reg T) and liquidate the shares.

    I have looked everywhere on their website and user's guide. I imagine that this is a very common situation. Long options that you cant "afford" to exercise and hold.

  2. Close the positions and save yourself from all the stress. What would you do if come Monday, the position goes against you?
  3. KPS21


    I actually don't care about the risk of being short $2.5mm worth of S&P500 for a day. It is a hedged position, anyway. I only care about quirks in the way IB settles the options that might be expensive.
  4. Why dont you want to close the positions before the weekend? Wouldnt it result in the same profit?
  5. KPS21


    By closing the position, I assume you mean: Sell the puts. The problem with that is the bid price. I can't sell them for parity. If SPY is trading 138.75, for instance, the 142 puts are 3.20 bid. Not 3.25 bid. So it will cost be about $5 per contract plus commission to sell them.
  6. Call them up and exercise... IB should let you buy the shares and exercise the puts at the same time and give you the difference. You won't even need to hold with margin, I'd assume.
  7. nassau


    In the past when one of the traders was fed the stock as a result of option expiry we had to adjust the account by 940am if we were out of compliance
    as you are not out of compliance when the market closes and in reality the option and stocks are balanced on saturaday you will have monday to adjust and if you are then within the 4/1 ratio you will have up to 350pm to decide.
    you can verify the above by just calling ib