you guys have to realize, they will blow you out, when the bid offer spread opens up like it did without a second thought, your position is a threat to the firm. now it is your problem to take it to abitration. how do you like computer trading now. so if it opens up for 1 minute will they blow you out or what are there guidelines.
Some people here need to read up alot on debit spreads. If you think they can liquidate you for a debit spread you've already paid for, you probably should close your account with IB anyway.
According to IB's own website, under trading --> margin ----> options, the margin requirements for a put debit spread is "Maximum (Short Put Strike - Long Put Strike, 0)) " By liquidating the position, IB violated its own rules on margin.
Actually I think it would have been hard to assemble a "portfolio of blue chip stocks" all of whom went to $.01 the other day. And clearly the exchanges did bust the trades of stocks that made some of these huge moves (and they have a history of doing so, as much as I hate that tactic). That said, it seems to me that IB has an auto-liquidate function that has some unacceptable features in it that need to be addressed. For example, this idea of liquidating options that are part of a spread by single option really is ridiculous....especially under the conditions that we experienced last week. We had the ES for instance moving 10+ points per minute. Imagine taking 1-3 minutes to first liquidate one leg of a spread, then another as one poster seems to indicate happened. This is a recipe for disaster. Further, IB owes some duty to the client, even if they are liquidating. In this case it would seem that duty would include liquidating spreads as spreads, not one options at a time. Anyone with experience recognizes that legging into or out of spread positions, or just lifting one leg of a spread takes on large additional risk. IB should not be liquidating in a manner that exposes the client to large additional risk just to minimize it's own risk. Further, rapid changes in account values, or rapid changes in VIX levels should serve as red flags to IB that perhaps something is amiss. If a stock that was $40 suddenly shows up as a $.01 stock this account should be red flagged and looked at by a human being, not simply liquidated. Hopefully IB will address some of the concerns with their auto-liquidate program soon. OldTrader
I was aware of this 10 minute period from some posting somewhere in the past. In fact, I think I might have proposed a ten minute delay at some time in the past. I have been in the situation where too many of my opening orders were executed and I exceeded my margin limits. Presumably because the market was so volatile and I had so many orders on and positions active, my screen froze for an extended period -- perhaps more than ten minutes. This has only happened to me a few times but 10 minutes now sounds much too short to me. I suspect allowing an hour or two would not significantly increase the losses IB might incur in these circumstances.
No, I don't have a naked short. For European options I can always hold until expiration, when both the long and short options are guaranteed to be worth their intrinsic value. The worst that can happen is that my debit put spread is worth 0. For American options there is the complication that the short puts could be exercised, but then the long puts could also immediately be exercised. Note that I am not talking about theoretical value (whether with Black Scholes or any other model). I am talking about the terms of the contract.
if you have many options, IB's margin calculation doesn't always assemble the options into the ideal combinations. so even if their auto-liquidator possessed this type of intelligence, i wouldn't trust it unless it involved only 1 type of options combo. not to mention their auto-liquidator will give you the worst possible price (market prices). their auto-liquidator makes me very nervous.
I think what happened is inexcusable and they had no justification to liquidate, but all of you are missing the point. Their autoliquidate function is not programmed to asses the trader's maximum risk, it is designed to assess <i>their</i> maximum risk. Like any other shop, they only want to protect themselves and taking into account the portfolio margin is not their goal. They calculate their maximum risk if/when things go sideways. If one position looks out of whack to their algos, they will get rid of it. It is obviously a mistake in the programming, but they will find a way to justify it. And for those who are suggesting arbitration, the NFA is more crooked then the FCMs. You literally have to catch a provider stealing before they will give you any relief. It is the same thing as the SEC. They are there for appearance's sake and to protect the large firms, not the consumer.