IB Option Assignment

Discussion in 'Retail Brokers' started by lpope, Jul 24, 2006.

  1. lpope

    lpope

    Does anyone know the method IB uses to distribute option assignments between accounts? I was suprised to find 32/50 at-the-money nakid puts were assigned in one account and 0/25 were assigned in another account over the weekend. I couldn't find the IB option assignment method by doing a search of the IB website or in the customer agreement (where Etrade has it). So I'm still looking for the IB policy and any help would be appreciated...
     
  2. http://www.interactivebrokers.com/download/option_exercise_disclosure.pdf
     
  3. lpope

    lpope

    Thanks for the link freehouse.

    If someone from IB is paying attention, this policy is ambiguous because it does not differentiate between accounts and customers well (the words appear to be interchangable but are not in my case). Assuming that the spirit of the policy is that option assignment is random, then there was likely a problem with the assignment of the OVTI July 17.5 puts. Or an event with the probability of 43!/(18!*75!)) or smaller happened.
     
  4. alanm

    alanm

    I'm guessing that the word "customer" is mis-used, and should be "account number", since they specifically state they use the account numbers in numerical order. Given, this, some possibilities seem to be:

    1. Account2 (which got 32/50 assigned) is numbered higher than Account1 (which got 0/25 assigned) and the random number fell within Range1 (at #19) in Account2 and all contracts were assigned before it got to Range2 in Account1.

    2. Account2 is numbered higher than Account1 and the random number fell between Range1 of Account1 and Range1 of Account2 and it ran out of contracts after assigning 32 to Account2.

    etc.

    i.e. You not only got pinned, but you hit the lottery.

    Or, something went wrong :)

    Do let us know what you find out.