I was going to close this trade, but the market closed as I hit the submit button - yes it was very poor of me to have this open position...still learning the ropes and I made a very stupid mistake.
This is not 100% true, especially since he uses IB. It has one of the worst auto liquidation policies, that are ran by a humanless engine who randomly close out your position. (unless u assign liquidation order). The worst part is depends on what you trading, they WILL liquidate your position outside of normal market hours using market order. Imagine IB's engine auto liquidating es mini options outside of market hours, yep instant 20-30pt bid/ask spread loss. Anyway getting sidetracked from the main discussion, but i always leave at least 25k excess now in IB to avoid ever getting hit by that engine again.
what's not? some firms will close out a position that looks like it will be in the money if the client does not have enough buying power to take assignment.
you don't need $33,000. Reg T is 50% and you can apply the release of the margin requirement you had on this position. sounds like you will get a fed call, but you can meet that without penalty the day after assignment by closing the assigned position out. You'd have to do this Monday though.
I have heard that they do. But I do not believe they have the right to make that decision for the customer. I know I would never tolerate it, and if it happened one time, I'd take them to arbitration immediately. (With no chance of winning, I'm sure). But it can never happen to me, so that point is moot. (I trade European style options). If the customer fails to exercise good judgment and creates a margin problem, then the firm blows out the offending position. I don't believe there is any legal basis for them to take early action. The customer may be waiting until later in the day to close - how can the broker take that right away from the customer? Mark
Not on weekends. You will get an opportunity before the market opens Monday. An don't forget, if your limit bid is not hit, you can raise the limit. Just be wary of entering a market order when he bid/ask spead is wide. But call the broker early Monday. Discover if they offer advice, warnings, or instructions. You may have to get permission to trade before the market opens. Mark
You are mistaken. He has 33,000 from the sale of the stock. he is allowed to use that cash to repurchase the shares sold short. Mark
I am familiar with their liquidation process. It is inhuman (and stupid) - but they don't care. I do not believe they can, or will, liquidate before the market opens. Legally, the margin call may not enforceable when the markets are closed. I'm fairly sure a customer has until the market opens to meet that upcoming margin call. If true, they cannot blow him out of the trade if he still has time to wire cash. But that's a fine point of securities law. That's why I suggested getting on the phone with customer service. Someone there should be able (no guarantees with that firm) to tell OP what is going to happen. And when. If he promises to close prior to open, that should be the end of the problem. Mark
most of the time it's worded in the account agreement, margin agreement, or even options application that they can do it if the account has the risk of going negative equity. I doubt they would do it to avoid a margin call.
he should have until the market close to liquidate out of his call, and 5 days later to bring in funds to cover the assignment. but firms often word in their margin agreements that they can raise the margin requirements without notice, and can close out positions without notifying the customer beforehand.