There are 2 issues here: 1. A US IRA can never incur a debt nor be permitted to incur a debt The OCC will never automatically assign an ITM option IF the broker so advises. 2. Almost any investment which does not incur a debt or liability can be used for an IRA. Excluded are things like art and collectables. Short Puts, long Puts, long Calls , equity spreads etc are all 100% legal in an IRA account. As I see it the fault is clearly IB. Matter of fact IB committed a US Federal crime. If this happened to me I would first call my local FBI office. Depending on the outcome of that call I might contact the IRS. Depending on outcome I might need the services of an attorney. The only loss the IRA can legally suffer is the initial cost of the long Call -- period. The SEC might also need to be contacted. As an IRA account, this account should have been flagged to the OCC to never auto assign long options. IB failed in its judicial required duty. This is peanuts to IB unless it gets to a lawsuit or US Federal action in which case it will cost IB fines etc etc.
Gee , you were doing so well, until you fell off the deep end with that. Try another nick, this one is toast.
As described, IB performed an illegal act by creating debt in an IRA. The FBI is the enforcement branch of the Justice Department. What is so wrong with starting there instead of spending $200+ an hour contacting attorneys. One might try talking to someone of authority at IB for starters but I assume that was already done or not offered the customer. After hearing this and other anti-customer actions of IB I would not expect them to correct their mistake without pressure. Fact remains the OCC would never have assigned the long Call had it been flagged by IB as it should have been to prevent this error. Clearly IB is short on customer care and to be avoided.
from etrade To trade options, you must apply and be approved specifically for options trading. We offer three different options trading levels in the following types of IRA accounts: Traditional IRA Roth IRA Rollover IRA SIMPLE IRA SEP-IRA Level Options Strategies Available Level 1 Covered calls, including: Selling covered calls against stocks held long in your brokerage account Buy-writes (simultaneously buy a stock and write a covered call) Covered call roll-ups/roll-downs Level 2 All Level 1 strategies, plus: Married puts Long calls Long puts Long straddles Long strangles Cash-secured puts Level 3* All Level 1 and 2 strategies, plus: Equity debit spreads Equity credit spreads Index debit spreads Index credit spreads Equity calendar/ diagonal spreads (long positions only) American-style Index calendar/ diagonal spreads (long only) Notes: To place Level 3 options trades, you must have equity of at least $2,000 in your account. Any Level 3 order you place may not reduce your equity below this amount. ps. wonder if IB allow him to keep the gain if goog jump to 500 the next day or they will cite some reg T and tell him to fly off and pocket the gain themself.
SirCurNon, its a cold cruel world. My suggestion is that you seek refuge at a monastary , where everything is under control at all times , and they tuck you in early. Worst that can happen is you prick your finger while trimming the rose bushes.
Would IB have permitted 16 long Put options to expire ITM and Short Sell 1600 shares of GOOG? Do you know the laws regarding IRA accounts? You approve of illegal actions? Wouldn't life be a snap if you could exit a traffic ticket with insults to the law? I should have first suggested a phone call to OCC or the 888options folks and asked what requirements they have wrt auto assignment of long ITM options in IRA accounts. I am calling OX wrt this question and OCC tomorrow. Have you bothered to do anything? What are your suggestions if any? Kiss IB I guess. He had no business using options in such a speculative manner like buying 1600 calls at $3 per week cost leaving an account balance of < $1k. TO nkhoi or ETrade (?) Covered Calls are synthetically the SAME as Cash Secured short Puts. I wouldn't talk after reading the account security fiasco talked about in these fora. You really do not understand options or the issue that the option buyer should be under NO obligation to exercise. The customer did NOT exercise. The OCC did and the OCC would NOT have auto exercised had IB properly marked the account as NON exercisable. Better go back to options school.
I hate to say it but I was reading through other online brokerages agreements concerning IRA options regulations and I found the same dilemma. Namely, several other brokerage firms automatically exercise after the common stock settles more than $0.25 ITM and place the burden upon the customer to liquidate. However, it does appear that this is a recent change in policy with several of these firms and probably one of the main reasons we are talking about this big problem that the guy who started the thread is going thru.
The issue in this thread is auto assignment of ITM long options in an IRA account which by law can not be a margin account because it can not assume any debt whatsoever. Had the customer sufficient cash then no debt would have been created for the purchase of stock. However, long Puts with no long stock requires short selling stock iot exercise and that I think may be illegal in an IRA. This issue should also extend to cash (non margin) options enabled accounts too. I am going to guess that any customer should be able to instruct their broker to never auto exercise ITM options. This must then be conveyed to the OCC. Matter of fact, brokers will make you agree not to hold them responsible if you are NOT auto exercised and thereby miss a profit. Btw, OX notifies me, and I assume all customers, that I have option positions expiring via an email on the Thursday prior to expiration.
You have to click the lapse button on the TWS workstation to not exercise your options on expiration date (that are in the money by at least 25 cents on equity options).
I never did have much respect for the CBOE as this is not the first case of misinformation I have encountered on their site. I called OX today and was informed that they (OX) informed the OCC to NOT exercise those goog Calls when goog rose 0.1% or 30cents in afterhours. So no OX customer suffered the fate of the IB customer. Scratch them from my list. Yep, cheap is what you pay, cheap is what you buy. I was not happy with the remainder of the OX conversation which went along the llines of 'that does not apply to brokers' and 'no, IRA accounts are not excluded automatically from selling stock short to cover Long ITM Puts or buying stock beyond the limits of the account and chasing the owner for the loss'. I think this entire issue needs some serious study by legal eagles. Any flying about this nest? Perhaps involve the SEC at the very least who should be protecting the public. I bet even Optionetics preaches the 'no risk long options' lie. I know I have heard it on their Infomercial a yr or 2 ago.