question about IB liquidation

Discussion in 'Options' started by nemo77, Aug 17, 2011.

  1. nemo77


    Hi. I had a calendar spread using weekly SPY 132 Put(10 contracts). The short leg was obviously deep in the money and was going to be assigned at expiry. I did not have the margin to cover the 1000 shares that would have been assigned, but still had the long leg of the 132 puts. The reason I did not close the chort leg, was since it was deep in the money, the spread was too big. As I understand, there is no risk in this position.

    IB liquidated my short leg at $2.5 premium after market close on friday, costing me about $2500. I could definitely have done much better than this price and would have if I had known this was going to happen. In the past they have assigned shares, but they decided not to assign at the worst possible time. Are they allowed to do a look-ahead margin call?

    They denied any compensation for this gross overpayment. My question for you guys is there any point in pursuing this? I have read that you can go to arbitration but do I have a case and if so, how can I go about it doing this?

    This has also led me to consider lightspeed trading? What you guys think about this broker? Thanks in advance.
  2. jayre


    Here you go, picking up nickels in front of a bulldozer... with the $2500 loss you probably gave back all your comission savings that you had with IB. But i think you can learn from that. Let us know how you handle this.
  3. LeeD


    You need to decide for yourself what you think IB did wrong:
    1) Did your position ever was in teh state of "margin call"? Normally IB give clients a littlew time to liquidate position when this occurs. The price may get better or worse over this time. They do not try to "predict" where the price goes. They just liquidate your psoition saubject to rules.
    2) Did they do a bad execution for the time of the execution? If you are doubtful you can go to exchange transactions and check when your position was really liquidated
    3) ForexForex has a good point regarding situations when IB would not assign shares.

    Thing is your loss is large for an ordinary person but is laughably small for arbitration. Unless you can make it crystally clear case via your own research (which historically a number of people have done), the case needs a lawyer. Litigation can easily cost over $10,000.

    I would recommend to explore other options available if you can make a strong case, such as making your case clear with the broker, filing a complaint with one of the regulators etc. Make sure to clarify where you think the broker broke applicable client-protection regulations or the contract with you. If you can't then you don't have a case.

    BTW, it's a valid question to ask the broker "why they didn't assign shares this time". The answer may become one of the arguments in your future case.
  4. nemo77


    thanks for the advice. I probably will just suck it up. From your explanation, seems like too much work for the $2500 and nothing is guaranteed.

    As for IB's example scenarios, they don't really fit, because I had a fully covered position, whereas, in the examples, they just have assignment of shares. My long put position could have been exercised to cover the assigned shares.

    I was wondering if it is legal for IB to use post-expiry margin deficit(their own rules) due to assigned shares, but fully covered long puts that could have been exercised to cover the position.

    As for my second question, what you guys think of lightspeed or mb trading? Thanks.
  5. It should be mandatory for anyone new using IB, to do a search for ib liquidation engine on this forum.

    Count yourself lucky it's only $2500, i lost 5 figures when IB liquidated 1 leg of my es options using MARKET order in the middle of the night a few years back during the crazy time, it then proceeded to do the same on the other leg of the spread since the position was completely out of balance by then. It was my first and last dealing with its liquidation engine.

    For $2500, dont bother waste your time. Count as a lesson learned and move on. Once you understand how it works, it's not a big deal.

  6. nemo77


    newguy, obviously your situation is much worse. Like I said above, probably just have to swallow the loss.

    By the way, here is one of their solutions to my situation:

    3) allow delivery and liquidate the underlying immediately thereafter.

    So if they can allow delivery, they could liquidate(exercise?) my long leg after delivery?

  7. hajimow


    One of the reasons that I am with IB is the liquidation rule. I have be liquidated a lot with loss but it has saved my ass. My advice is that don't go with a broker that does not liquidate and when you are really broke, you get a nasty letter from your broker asking you to deposit money which you don't have.
  8. Open a dispute in the IB ticket system.

    This is a separate department and category in the ticket system.

    This is not the same thing as opening it as a trade issue.
  9. jayre


    I agree, autoliquidation is a great thing. Not giving you 20 minutes to sort out things yourself is awful and creates unnecessary risk for clients.
    A lot of the confusion could have been avoided with a 15 minute rule or something similar with almost no additional risk, but IB would not do it. Does anyone know why?
    #10     Aug 18, 2011