Interactive Brokers would not allow me to exercise

Discussion in 'Options' started by Robert Weinstein, May 21, 2010.

  1. I own some BP 44 May calls and BP closed at 43.82 so the options would not automatically get exercised as they were OTM at closing of normal trading

    In after hours trading BP climbed above 44 about 17:28 EST and IB response to me getting an error on TWS was that "we do not allow for exercise after 15:30 EST"

    So with IB being a very huge option player I seriously question if perhaps IB is using the cutoff time so that they may exercise the options if the stock goes in the money and pocket the profit.

    I would find it hard to believe that such a big player in options that is totally electronic, has a trading desk with Timber Hill has not figured out that there is a lot of options that goes ITM in afterhours trading and allow all that money to be left on the table.

    It would appear that either IB is very stupid or is cheating customers or I guess there is a chance as well that all that money really is being left on the table because of some other reason (costs of staff etc...). I would guess that the cost of having someone stay late on Friday a month to hit bids/lift offers for all of the options that go ITM in after hours would be small compared to the risk free profit.
  2. Retief


    What happens to someone short the calls? Do they get a windfall?
  3. Bob, IB's stock option cutoff is 4:30pm eastern as per their website, which is pretty standard for online retail brokers:

    The official cutoff for the clearing house which your broker calls on your behalf is 5:30pm, so even if you were a registered broker and had a direct line to the exchange, it would require some fancy work to get an exercise in based on a stock move at 5:28pm.

    Let us know if you find any retail-oriented guys with a more lax policy - I'm sure most prop groups, especially where you're registered, will let you call in right up to the 5:30pm deadline.
  4. Yes if you believe that IB / TimberHill being a very large option trading operation has not figured out that if they cut off customers at 4:30p and the options don't expire until Saturday there is a window for IB/TimberHill to exercise if there is a bid that will allow for a profit.

    It would be very hard to imagine that all the options that are done thru IB by customers that are in the money in afterhours trading while being OTM at the regular trading time are just left to rot.

    It must be huge dollars each month. This does not pass the smell test for me
  5. I went to the OCC site and also sent an email with the question of cut off time and it's very clear that IB is not "calling in" exercises as its transmitted electronically(no big surprise there).

    It also appears (but I did not find the official time yet) that it is much later than 5:30P EST because some of the language of the rules state that anything before midnight is considered same day and late submissions due to power problems etc... are allowed. It appears that "late" means after 8am the next day

    The options don't expire until Saturday and its all done electronically and the after hours trading doesn't end until 8p EST so it does not add up that 5:30p EST would be a cut off time as there is nothing magical about 5:30p EST.

    I read many of the rules and I can't say I found the standard official "normal" cutoff time but there is a huge amount of money involved and I believe IB doesn't have someone actually doing any paperwork when options are exercised so why would IB cut the time off at 5:30P EST. ?

    I have been looking for another broker but its amazing how many brokers that are high tech like TS actually require a call into their trade desk to exercise (regardless of when other than auto exercise on Fri Exp day)

    Lightspeed costs about the same as IB for trading (in some ways less) and I sent an email to them about timing ect of exercising. As I understand it the service is good there as well

    If anyone knows of a broker that offers about the same pricing as IB I would like to hear about them.

  6. The OCC rule, in no uncertain terms, is 4:30pm CST. Barring an excusable situation (systems down, electrical failure, etc), one second after 4:30pm CST and you have a violation. Period.
  7. For Equity Option Contracts Traded upon:

    IB must receive an Exercise Request by: North America US Options Exchanges 16:30 EST

    How would you like it if someone called you "stupid" or "trying to cheat your broker", because you simply didn't look at the Options Exercise rules? IB takes a lot of unwarranted heat...
  8. Thanks for your reply. I did a google search and on the options industry council site it does also say 4:30p as the cutoff

    It does not make sense for IB to have a cutoff time of 4:30p CST if the exchange cut off time is the same (ok, it does make sense but it doesn't allow for the sending of the order to IB and then for IB to the exchange at the very last moment)

    Perhaps IB really is letting these options puke out dead but maybe they don't have to clear through the exchange either. I am unsure but I am trying to find out.

    I am having a hard time getting my head wrapped around how badly the option market makers are screwing over the public if this really is the case. Why would there be a cut off time of 4:30P CST in the age of the electronic world when the options are not yet expired that the options would die before after hours trading is done. First we can not have orders on both sides of the market ensuring large spreads on most options for the option MMs, then if you post to the CBOE they cancel fee you to death (seriously a $1 for a cancel when it costs the CBOE way less than a penny?)

    I understand the retail guy getting the big hard shaft as the SEC could care less but one would think the big buy side would have put more pressure on the SEC. I love the argument that if options are allowed to trade in pennies that it would be harder for large traders to get filled totally at the NBBO. We can see how liquidity totally dried up with the options that are currently trading at a penny....NOT

    We can also see how liquidity dried up in stocks once people were allowed to post bids and asks directly on the marketplaces as well.

    I really hope BATS shakes things up and makes it easier for non option market makers to take advantage of the other market participants and when liquidity explodes like the stock market did when everyone could play on a level playing field (well more level at least)

    Frustrated in Wisconsin.....
  9. The OCC rule, in no uncertain terms, is 4:30pm CST. Barring an excusable situation (systems down, electrical failure, etc), one second after 4:30pm CST and you have a violation. Period.
  10. Firstly, I am not a newbe.

    Secondly, I did read the IB rules and because I am not a newbe I know that what IB has printed, and what IB customer service says does not make it so. IB has some really great things about it and some things that are really piss poor. I think of IB like McDonalds, cheap and the customer service to match. For me that is normally fine as I don't need a lot of hand holding.

    On a regular basis I see IB doing things that are not to policy so before you start qualifying me perhaps doing a better job at it might be a good idea. I probably have been trading a lot longer than you have Mr. Gibbous. So unless you have something to actually add like why would IB have a cut off time of 4:30 your not really helping.

    And if you have not seen IB mistakes with customer service or the way things are done than you may be the newbie or "naive". You do know that TimberHill is one of or the largest options traders right?

    Have a good weekend

    #10     May 21, 2010