There's a reason IBKR has a $16 billion (!) marketcap. They don't let undercapitalized axxclowns hurt them.
You mean brilliant undercapitalized axxclowns who can manage to lose more than 5 points in a 5 point vertical spread. How do you explain that exactly? I mean seriously, you have 1 position in your account and it's physically impossible for it to lose more than the spread. Yet somehow you need margin for 2X or more of the spread? Does that make any sense to you? How does that protect IB again, and how does that make the owner of the spread an "axxclown"? Is he somehow less of an "axxclown" he has $10M in that same 5 point spread?
Of course they're imperfect. It's a Type I/ Type II situation. If they autoliq aggressively enough to always protect their shareholders, they'll sometimes make mistakes... BTW an option spread might be worth "at most $5" yet not be available for purchase for $5 at that moment in the market. I've intentionally paid "impossible" prices for illiquid options at times, for tax-loss realization purposes.
I'm fine with being aggressive. This isn't being aggressive, it's being stupid and senseless. There is no more than a 5 point risk in a 5 point vertical spread, end of story no matter how aggressive or passive you want to be. When someone points out to you that your risk engine has a mistake in it and is auto-liquidating at great financial cost to your customers for no reason, you say something along the lines of "thanks, we've put that in our work queue and hope to have it fixed by XX date". I can tell you exactly how to fix that line of code, you put in a simple "if X||spread size..." in. No way that's more than a couple programmes working for a day, even if you have idiot programmers and a big QA overhead. Instead they refused to acknowledge that it's an error and refused to fix it and as far as I know here 3 years after I first brought it up it's still an error in their system. And this is just one of at least a half dozen similar issues I could give you off the top of my head and I'm sure you could find dozens of others on this board. There is zero excuse for this kind of behavior in a well run company, and if they still manage to make money despite this institutionalized stupidity think how much more they could be making their shareholders if they just tried a little bit harder? IB is about as far from a well run company as you'll find.
I've listed 2 I use, TOS and OptionsXpress. My commissions are actually lower for the products I trade with TOS and I have yet to see a software bug or act of stupidity out of them in 18 months vice dozens out of IB in the previous 18 months. There are literally dozens of brokers you can see listed here that people are happy with, look around. By the way, you did notice how you shifted from saying "IB aren't idiots" to "Show me someone who isn't an idiot" when their demonstrated behavior became too much for even you to justify? And again, not sure why you're so dead set on justifying their frankly unjustifiable stupidity. At some point that's going to reflect on you.
I'm not missing anything, believe it or not there are still lots of people who still use AOL, for example, so clearly not everyone behaves rationally in staying with a horrible provider of a service. I can't explain others choices, only my own. IB's clearly a horrible broker from my experience, and it appears from posts here that many others have shared my experiences. Like everyone else I was initially suckered in by their product offering, pricing, and API. Only after hard experience did I realize that those were far outweighed by their sheer incompetence. I'm just making sure that those who haven't had those hard experiences, yet, won't have to repeat them unless by choice. You very well may find that they have something that you really need that overcomes those shortcomings, although I still haven't figured out what that is for you.
IBKR should reply to this and articulate their policies. bid/ask vanish all the time in the futures options market with buku leverage. I would guess that they go with theoretical pricing.
If you've only got a $15K account, and you've got a spread that appears to be down by 17 points (assuming $50/point, lets just say that it's an emini), then that's $850 of "loss" vs what you would have thought is the max loss of the width of the spread at $250. My point is, if that extra $600 makes a difference in terms of your account being liquidated or not, then my opinion is that you are already way over-leveraged considering all the other positions in your account. I do see your point that with a vertical, that you expect your maximum loss to be the width of it. But if you are using a security that is very thinly traded (and, as you stated, had very wide bid/asks) then you can't always expect to be able to get out of your position with your loss capped at the width of the strikes. The real-time value of that position is, in-fact, what the market dictates as the bid/offer prices of what are in the market. If this has actually happened to you though, I would also like a detailed explanation of IB why this happens. What are some of the reasons why their auto-liq algo would use the market value of a defined risk strategy instead of the theoretical max-loss-at-expiration value? The only thing I can think of is perhaps perceived counter-party-risk at expiration?
Just to clarify, I don't trade with any leverage and this could happen to you with no leverage. If you open a 5 point vertical credit spread (on SPX for example) you should be able to assume that your max loss on that position is 5 points and spend up to your last few dollars under that assumption. That's not leverage at all. Just to show what happens in the example, let's say I had $15,200 (the $200 to cover commissions) so I opened 30 five point SPX credit spreads. My maximum risk a this point is that they all end up out of the money and I pay our $15,000. Now the spread makes it appear that I'm down 15 points, IB say's I'm $30,000 in the hole and liquidates me. Note that in my example it could just go to a 6 point spread and they'd say I'm $3,000 in the hole and liquidate me. My specific example was similar to this with SPX options with a higher balance and more spreads, hardly a more liquid option out there but when a position you put on ITM moves OTM you can get some big spreads on slow days outside the max possible loss range. Obviously I can use debit instead of credit spreads, although there are times the liquidity means this won't work. And IB is stupid enough you can trick their system by putting in your own limit order just outside the spread range for 1 contract and they'll index that as the spread, proving that their system isn't actually assessing any real risk. My point is that they're morons, and a special kind of moron who insists that there's nothing wrong with what they're doing and they wouldn't even consider fixing it. My question is if this is the kind of team you want handling your trades and holding your money. BTW if you've ever dealt with what they call "customer service" you can imagine their response. It was a combination of condescending, "let me explain how an option works" with their typical "the algorithm runs the world, we have no control over it and it's inconceivable that it could ever be wrong". I gave up and left shortly after discovering this and a half dozen other completely irrational "features" of their service, each of which was accompanied by the painful experience of dealing with their employees.