Wow, what a disaster. What will IB do next? Make a TV commercial using actors with even deeper voices?
It could be the Exchange or the broker .Here is mathematical explanation: May 6 , 2:50 PM- SPY = 110 # of contracts = 100 For a split second at 2:50:00 PM lets assume Long June SPY PUT 119 -> B= $9 A= $9.5 Value = $90000 Short June SPY PUT 114 -> B= $ .01 A= $ 20000 value = $ -2000000 ( I witnessed B/A .01/20000 for some SPY contracts . Even Illum from post # 2 mentioned the same. I even logged into my other broker account to validate the crazy B/A was not a mess up coming from my first broker. The quotes matched for both the brokers) @ 2:50:01 PM IB auto liquidate algo measures the risk. @ 2:50:10 PM IB auto liquidate algo triggers orders. At that moment the whacked B/A becomes little less whacked Long June SPY PUT 119 -> B= $5 A= $7 Value = $50000 Short June SPY PUT 114 -> B= $ 8 A= $ 10 value = $ - 100000 As per theoretical Black Sholes model used by most of the exchanges , the only varying parameter is intraday Implied volatility the impacts the option price. Even if the IV of you short 114 P shot up from 29 to 2,000,000( making up some number) in 10 seconds still the theoretical price of the option can never be 20000 . The maximum price of option cannot exceed its strike value. .01/ 20000 B/A may not be applicable to your scenario . Just speculating what could have possibly happened. To summarize you deep ITM bid of 119P could have been lesser than ask of ITM 114 P at the time of /just before liquidation. If this is the case then Exchange is to be blamed for mispricing ( and if its 01/20000 B/A scenario than its 110 % exchangeâs fault) If this is not the case then your broker is the culprit You need to find out at what time auto liquidation order was placed and investigate the B/A for both your long and short strikes for few time frames just before liquidation.
It doesn't matter whether the ask on the short is 10 million, it's legally covered by the long, which can be any price as well. No liquidation necessary. The end.
WIth respect, Cdn, you'd feel differently if you had a defined risk options position open and it was improperly liquidated by a bot, resulting in a loss that was many multiples of your expected max loss as defined by the rules and regs of the options markets. This position has a max loss which is good even if nuclear war is instigated. If (and I keep stressing this 'if') the OP is telling the truth about his positions, he got screwed by IB. By the way, I am a satisfied IB client. I just want an explanation on this one.
This is a very unfortunate situation, and IMO ridiculous. Whatever algortihm they have should have more smarts than random liquidations from outrageous bid/ask spreads. Were the bid/ask spreads crazy with SPX options also? If I had an account at IB (I actually do), and I put all my cash into long vertical SPX put spreads, I should NEVER have a margin call or auto-liquidation at any given time, regardless of what the bid/ask spreads are on either leg.
In theory you have no appeal and must accept the damage. In practice, speak with your broker about the indecency of selling a spread that was worth a fw dollars and being forced to pay a cash debit to close. They will tell you they use market orders to liquidate. tell them that's crap. You wont win, but speak nicely and you may get an adjustment. If you went over your margin limit, that is not your broker's fault, but they an try to treat their customers as if they were human. Ask what they plan to do to make it up to you. Mark
Liquidating a long put vert in a falling market - wow Im going with one of two theories 1) OP is a troll 2) IB's risk and liquidation engine is seriously flawed Both are very damaging to IB's rep so I hope to see a response from them PS - I am a satisfied IB customer
The case is not about real value of your positions at any market price of underlyings at any time. The case is regarding margin requirement. Period. As we all know there is no margin requirement on long veritcal put/call spread (same as there is no margin requirement on long call/put). In case someone at IB forgot how they calculate their margin requirement, you can forward them to their own webpage: http://interactivebrokers.com/en/p.php?f=margin => options If somehow they are still not able to go through their own margin algorithm, here's calculation (from their www): Put spread: (Maximum (Short Put Strike - Long Put Strike, 0)) In your case: SPY (Maximum (114-119, 0))=Maximum (-5, 0)=0 USO (Maximum (37-40, 0))=Maximum (-3, 0)=0 That is it. There is no margin requirement (which is obvious for long vertical put spread). This is regardless of market price, price can be 1mln in SPY 114 puts and 0.01 in SPY 119 puts and you don't care because margin requirement for this position is 0 and it should never initiate liquidation.
this thread is bordering on hysteria. neither 1or 2 is likely. one report of a possibly erroneous liquidation is not proof of systematic problems.if it was systematic there would have been dozens of report. if OP is a troll he will be outed quickly. nothing here is remotely damaging to IB's reputation. the highest probability is that it was a random error which will be taken care of.