I don't have an IRA with IB so I really doubt if I'd get an answer. I posted the question because it seems to apply to the originator of this thread.
ok i am just guessing but i would say that you would get the 4 points but still generate a margin call.
Brings up a couple of questions for me: 1. Election takes place overnight I believe. Consequently, you wouldn't have the shares until the next morning at which point you would have an instant margin call. 2. You'd have to short in advance of that. Would you be allowed to short that much GOOG with only 1K in the account. No I think. From IB: Short Marginable Positions: Maximum (50%*stock value, short sale maintenance requirement). Short sale proceeds are applied to cash and the short position value is subtracted from equity. Conclusion: You couldn't do this trade overnight. From IB Maintenance Requirement: Short Marginable Positions: If last sale price/share >=$5 then maximum ($5 per share, 30%*stock value). If last sale price/share < $5 then maximum ($2.50 per share, 100%*stock value). Short sale proceeds are applied to cash and the short position value is subtracted from equity. Conclusion: You couldn't do this intraday either...
IB implemented immediate exercise a while ago, putting the long stock in your account immediately when you exercise a call, or taking stock from your account when you exercise a put. I have some recollection, though, that they may have suspended this feature. If this were to happen, you would probably be immediately liquidated and make the diff between the strike and the liquidation. I still have the question of whether a margin call is generated and whether doing this, or doing it repeatedly will get your account frozen. Can someone from IB comment please?
Maybe I should have stated that standard IRA accounts are cash only. Margin not allowed. That's the reason I set up my hypothetical the way I did.
I don't know but the common sense answer is no because you don't have the buying power to get the shares. You will have to sell the calls to get the profit. John
I don't really understand why anyone would think this is someone elses fault. Clearly the guy shouldn't have been trading options. Any real options trader would know to check all their positions after 4:15, out of habit from the heydays. And as someone posted earlier, there was a bid around closing time, .05, maybe he was too cheap to pay the vig and decided to let it ride. Again, u don't shut ur screen off at 4pm and hit the bars on expiration. So many rookie mistakes were made here, everyone should know the auto-excercise thresholds and if he bothered to look at the price a few minutes after 4pm, he had til noon the next day to call his broker and give instructions. This reminds me of a takeover that occurred about 15 yrs ago, I think it may have been rjr with nabisco or something. They announced the takeover after mkt hours on expiration friday. Lots of people got screwed but hey, they shoulda known the rules.
Here's one i didn't see covered by anyone: THE IRS. The IRS does not allow margin in IRAs, any IRA that is used as collateral is deemed to have been fully distributed. This evokes the full taxes and penalties by the IRS. If audited, I'd highly suspect this type of debit balance behavior will cause it to be deemed a taxable account, and not a true tax exempt/defered account. It's the exercise with no available funds that's the problem.
IRA money is untouchable in bankruptcy. Why would losses in IRAs be able to cross-over into non-IRA money? Maybe if you're a professional trader, you can take this as a loss on your taxes. All I can say is you need professional legal and accounting help - its an interesting academic/public policy question though. Good luck.