How would a broker justify liquidating one leg of an options spread, when the spread has limited risk no more than premium already paid? Also this points out a huge risk with auto-liquidation. What if a thin stock trading at $10 opens with quotes at 0.01 and $10,000, and then someone high-ticks the $10,000 on a 1 lot? If you are short then IB's engine would close your position at the market at 1000 times the last traded price! This seems like an insane risk to take.
I have a friend who used to be a MM and this type of practice in the options market is "standard" practice. They make the market and when things get this bad, they simply "walk away" and put the odds overwhelmingly in their favor. If you want to play, you have to pay...lol When a GOOG or a BIDU reports earnings look at the spreads at the open....works the same....
All I know is that IB is NEVER wrong. I've never read a post of anyone being made whole from an IB error. The only recourse is arbitration if enough money is involved to make it worth while.
As you described it something is very wrong!!! Long the 119 puts, short the 114 puts. This would be a PUT debit spread. The total risk is the debit. If the market rises both options expire and you lose the debit paid. The fall in the market is a move in favor of the position. The SPY could go to 65 and if assigned at 114 you could exercise at 119, 5 points profit. Regardless of the move in the market your risk is only the DEBIT. There would NOT be any margin call EVER from ANY market move on this position. If your position was as you described, the broker had no right to take any action on your account. I would call and demand that the account be made whole. If the situation IS as you describe and IB declines to correct the error, you should NOT, I repeat NOT chalk it up to Education. You should send them a written letter of complaint. The rules require that all written complaints be reported to the regulator body along with copy of their written response/resolution of the complaint. They are also required to provide you (in a timely manner) their response.
If the OP is being truthful then it's absolutely in error. There is no variation-margin on the vertical. Were you carrying a margined position in a stock that gapped a 25% loss or more?
As someone who knows a little bit about options, I would have to agree with others in saying that you should be able to win your arbitration case against IB. I have no doubt they will tell you to screw off, but they are not the ones who pass judgment in arbitration. If things are as you describe, where you had fully paid for and correctly hedged put vertical, and there was nothing else wrong in your account to cause an overall margin issue and then IB liquidated you with market orders when there was no mathematical way you had any margin problems then I donât see why you wonât win. Is what I wrote correct? Did you have any other problem positions? Were you trying to do something with the spread or some other position or was it all IB? You can also call the exchangeâs compliance department and have them look into the issue.
The big guys screw everything up and the exchanges steal profit form everyone's accounts to give back to them. You get screwed, tough shit.