Options12, I'm allways open to admit that I made a mistake if that's indeed the case. While you are definetly right that auto liquidations are a gift to all market makers, it seems that TH would have an edge over other MM because of the following. If 2 MM, one of TH both have them posted the exect same bid on an option, each of them on a seprate exchange. Now that option is being auto liquidated so it would be sold for the bid price, which MM would get the trade? (Its my clear understanding that in that case IB would route the trade to the exchamhe that has the TH bid).
shmuck, why would it be an automatic gift to a mm? what if the stock is tanking and there's no way to unload it higher? go away, you waste our time.
An options market maker typically maintains both synthetically long (long call/short put) and short (short call/long put) positions at any one time as they have an affirmative obligation to both buy and sell at their posted quotes, but in the aggregate are either net long delta or net short delta. If, for example, your liquidation results in the sale of your long calls or the buy in of your short puts to the proprietary side and they are already net long they are simply increasing their long position and it can't be said with any certainty whether they will make a profit or not when that long position is ultimately closed. In any event, a market maker generally profits by buying at the bid and selling at the ask and not taking directional bets and in the case of IB's proprietary trading this strategy seems to be supported by their public filings. More to my point of the the gain or loss on any one transaction being 'indeterminable', a broker making a market in multiple securities classes is likely hedging a long position in one security with a long or short positions in different securities based upon their correlation (on a diversification or long/short basis). To suggest that the proprietary trading side is: 1) violating the Chinese Wall rules by monitoring and acting upon liquidations from the brokerage side; and 2) has the capacity/desire to manage its proprietary book so with the objective of realizing profits from those liquidating trades seems quite a stretch to me. As for the language in the customer agreement, lawyers are always going to word such agreements to recognize what could happen (a profit from liquidations) for purposes of full disclosure and to minimize lawsuits, but to assign a probability of that happening seems difficult at best. Moreover, I doubt the reference to stub quotes is relevant here as those typically exist prior to the underlying opening at the primary market. Rarely does that that opening not take place by 9:40 ET which is what I understand to be the start of margin liquidations by IB each day. I'd be interested in understanding why you believe liquidations (or any other order for that matter) is of greater benefit to market makers than it is to another market participant particularly due to the priority customer orders receive.
Stock777, I'm not wasting any time here, I had quite an acomplishment, I went down from your ignore list. I really would encourage you to keep writing posts here, so you can reach your milestone of "15 thousand useless posts".
An options market maker typically maintains both synthetically long (long call/short put) and short (short call/long put) positions at any one time as they have an affirmative obligation to both buy and sell at their posted quotes, but in the aggregate are either net long delta or net short delta. If, for example, your liquidation results in the sale of your long calls or the buy in of your short puts to the proprietary side and they are already net long they are simply increasing their long position and it can't be said with any certainty whether they will make a profit or not when that long position is ultimately closed. In any event, a market maker generally profits by buying at the bid and selling at the ask and not taking directional bets and in the case of IB's proprietary trading this strategy seems to be supported by their public filings. More to my point of the the gain or loss on any one transaction being 'indeterminable', a broker making a market in multiple securities classes is likely hedging a long position in one security with a long or short positions in different securities based upon their correlation (on a diversification or long/short basis). To suggest that the proprietary trading side is: 1) violating the Chinese Wall rules by monitoring and acting upon liquidations from the brokerage side; and 2) has the capacity/desire to manage its proprietary book so with the objective of realizing profits from those liquidating trades seems quite a stretch to me. As for the language in the customer agreement, lawyers are always going to word such agreements to recognize what could happen (a profit from liquidations) for purposes of full disclosure and to minimize lawsuits, but to assign a probability of that happening seems difficult at best. Moreover, I doubt the reference to stub quotes is relevant here as those typically exist prior to the underlying opening at the primary market. Rarely does that that opening not take place by 9:40 ET which is what I understand to be the start of margin liquidations by IB each day. I'd be interested in understanding why you believe liquidations (or any other order for that matter) is of greater benefit to market makers than it is to another market participant particularly due to the priority customer orders receive.
This is not about TH's net delta position. This is about the profit or loss on specific IB customer transactions in which TH acts as a principal. Here's what IB says. There is nothing in this discussion about assigning a probability of a profit or loss. IBsoft will clear this up soon. "In such cases IB's affiliate may act as principal in the resulting transaction and may earn a profit or incur a loss in connection with the transaction. The source and nature of any compensation received by IB in connection with any transaction is available upon written request of the customer. For further information, check the IB website or email help@interactivebrokers.com" Has IB stated this previously? This is interesting news. IBsoft, will you address whether or not IB has a "start" time for auto liquidations each day? The stub quote rule applies all day. The rule actually gives MORE leniency toward wider spreads in the first and last 15 minutes of the day. See: http://www.sec.gov/news/press/2010/2010-216.htm Customer orders get filled and then the market makers get the rest. The more illiquid the security, the better the fill for the market makers during the auto liquidation. Check out this example: http://www.futuresmag.com/Issues/2009/4/Pages/Bad-fill-or-bad-rule-.aspx
I will answer this one for IB. For stocks & options IB will generally wait 10 minutes from the open to start liquidating, (they have the right not to wait & even liquidate AH) After 9:40 if at any given point you have a margin deficit liquidation will start in around 60 seconds. For futures liquidations can hapen 24 hours.
9:40 seems to be generous to me on IB's part. There's no worse time to put a margin call order than at 9:30. Especially in options. So if IB were trying to fuk you on a auto liquidation, they could take a lot more money out of you if they did it at 9:30 .