Quick question: what happens with cash settlement contracts in Interactive Brokers if we don't close them before expiration ?
They will be cash settled . Automatically. If it's a losing position and you don't have enough cash, then you will get a margin call asking you to make more funds available to meet the margin call requirement. Nowadays some brokers even liquidate your position (incl. other positions) automatically to meet the margin requirement, even w/o asking nor informing you... Otherwise (if it's a winning position), then just be happy
But the profits or losses are reflected daily on account (and I would get a margin call if I could not meet margin) so what does happen in the last day differently from the day to day calculation ?
Lets say you buy 1 ES, and this has value of 3600 at expiration or $180,000 for 1 lot. So you will have to settle with $180,000 cash. Lets say you only have $20,000 in your account. This means you owe your broker $160,000. hahaha, none of what i wrote above is true. it is all BS. In reality your position gets settled out at expiry, the PnL for the position is either added or taken from your account.
I was talking of options contracts, you now say it's futures contracts. Sorry, I have no experience with futures. Maybe someone else can answer.
Huh? No this is incorrect. The purpose of trading cash settled options is you don't have to worry about exercise risk. No margin calls here. For example, if you buy/sell a vertical in the SPX and it expires in the money, everything is settled to cash, you don't have to come up with any funds.
You sure? I think you mean the special case with spreads, but not the general case, for example the case of a single short call or short put. Right?
If you are short a call or put that moves against, they may require additional margin over what was initially required, but you don't need to come up with any cash for the exercise (long or short). So, if you had bought todays SPX 3680 put for 1, the index closed at 3678.43, it would be as though you sold it for 1.57. You would not have to come up with any cash. If you sold the put for 1 (naked SPX options would require a lot of margin to begin with) it would be as though you bought it back for 1.57 with the cash settlement and would lose .57.
Just study this ShortCall trade and tell me what happens if the underlying moves to 160, ie. up +60%. Do you still mean no new/additional funds required? No margin call? https://optioncreator.com/staiv5t (S=100 K=100 t=1 IV=30 --> Pr=11.9235)