The prices which IB uses to mark U.S. listed securities options as of the close of business each day (both TWS and statements) originate from the Options Clearing Corporation (OCC).  As the sole clearinghouse for these option products, OCC generates a closing price for each option contract in order to calculate the margin required of its members on whose behalf it clears transactions (e.g., IB) and also to supply the risk arrays used by brokers carrying portfolio margin accounts.

Its important to note that the prices generated by OCC are edited and therefore may not reflect the closing price as disseminated by any of its participant exchanges.  They are edited primarily due to the fact that there is no consolidated quote provided for options, most of which are multiply listed and fungible across all seven exchanges (i.e., there may be seven different prices to choose from each day).  As a result, OCC creates a single price as of the close which is theoretically consistent across all exchanges and reviewed to ensure that there are no arbitrage conditions across strikes or time. 

In creating prices, OCC will start by taking the mid-point of the highest bid and lowest ask price across all listing exchanges, determining the implied volatility and then smoothing that implied volatility curve (for a given option class, type and expiration) through an iterative process which, in turn, adjusts the option mark prices.  There are also rules enforced to cap volatility for certain deep in and deep out-of-the-money options. The resultant edited price is extended out to six decimal places.  Due to the operational overhead of computing edited prices for the complete universe of option series, this process is performed only once per day as of the market close.

1. Total Quantity – defines the aggregate order size (e.g., shares, contracts);
2. Trade Increment – defines the unit (e.g., shares, contracts) size for each component order;
3. Time Increment – defines the period of time (seconds, minutes or hours) between the submission of a component order and the submission of the following order;
4. Order Type – may select from market, limit or relative. A market order will be executed at the ask price and should only be used where, for example, a stock is highly liquid with significant bid-ask sizes. Limit and Relative order types require that the trader specify additional order relationships and the choices are numerous. The execution price, for example, may be specified as being relative to a fixed value, bid, ask or last price, VWAP, moving average or last trade. These choices may be increased or decreased by an offset factor and multiple conditions may be established. For example, one may wish to create a relative order type to match the bid price plus an offset factor of $0.01 and to ensure that they don’t lift the ask if the spread is $0.01, add a condition that the bid be no less that $0.02 beneath the ask price.
5. How to Operate – if the trader does not check the box titled “Wait for current order to fill before submitting next order” then orders which do not meet the price conditions will continue to accumulate in accordance with the established time increment, the unexecuted orders will be aggregated into one or more potentially sizable orders at the exchange. If this box is checked, then the more restrictive the buying conditions, the greater the likelihood that the algorithm will fall behind its schedule of buying or selling at every ‘X’ interval.  If this box is checked the trader may then check the box titled “Catch up in time”. When that box has been checked and should the algorithm fall behind, the next orders will be placed immediately after their predecessor fills until such time the algorithm has caught up.
6. Randomization – check boxes are provided to allow for a +/- 20% randomization in the time increment and a +/- 55% randomization in the trade increment. Accordingly, in the case of a 30 second time increment, this would allow for randomization of between 24 and 36 seconds between orders and in the case of a 500 share trade increment, this would allow for randomization of between 200 and 800 shares (rounded to the nearest round lot) per order. Randomization serves to minimize the likelihood of others detecting your order.
7. RTH – a check box is provided which will allow the order to be filled outside of regular trading hours.
8. Take up Offer Size – if a limit or relative order type is selected, the trader may input an order size which if bid (in the case of a sell order) or offered (in the case of a buy order) the trader would be willing to take in its entirety, up to the remaining portion of the total order quantity (satisfies the price conditions).

1. Price Range - traders may specify a price range outside of which they do not want to buy the stock;
2. News – the trader may stop the algorithm for some period of time if there is news on the stock, for example;
3. Position - traders may stop the algorithm based upon their position in the stock; For example, a trader running multiple algorithms one to buy the stock and another to sell in an attempt to trade the stock back and forth for a profit may decide to suspend one side if the position becomes substantially imbalanced;
4. Stock Path – a trader, for example, may wish to suspend the algorithm if a given moving average, say the 10-minute VWAP is not at least as high as another average, say the 50-day moving average. This feature enables you to set up algorithms to trade chart points even when you are not looking at the chart at that moment;
5. Stock Path for Multiple Symbols – this condition is similar to the last except that it calls for two symbols. Here you can put in any symbol and compare some data point regarding that symbol (e.g., 10-minute VWAP, etc.) to the same or a different data point regarding the second symbol. These comparative conditions can apply to different symbols or to the same symbol.   For example, you could specify that you want to buy a certain stock only if it has been in a continuous uptrend. So in addition to the 10-minute VWAP being higher than the 50-day moving average, you would also like the 10-day moving average to be higher than the 30-day moving average on this stock.

1. Products – any product offered by IB (stocks, options, ETFs, bonds, futures, Forex) other than mutual funds;
2. Order Type – market, limit or relative.

IMPORTANT NOTE

This algo will only operate when the trader is logged into the TWS.  If the trader has been logged out prior to the algo completing (either by user action or by the automated nightly restart), a message will appear upon the next log in which will allow for re-activation of the algo.

Account holders hedging or offsetting the risk of futures contracts with option contracts are encouraged to pay particular attention to a potential scenario whereby a change in the underlying price may subject the account to a forced liquidation even if the account remains in margin compliance.  This scenario is driven by a fundamental difference in which gains and losses are recognized in futures contracts vs. options contracts coupled with IB's requirement that the commodity segment of one's account maintain a positive cash balance at all times. 

Gains and losses in a futures contract, by design, are settled in cash and IB updates the account holder's cash balance through the TWS on a real-time basis for any changes in the futures contract price.  An option contract is also marked-to-the-market on a real-time basis but this change in value represents an unrealized (i.e., non-cash) profit or loss with the actual cash proceeds not reflected in the account until such time the contract is either sold, exercised or expires.

To illustrate this scenario, assume, for example, at time 'X' a hypothetical portfolio consisting of a credit cash balance of $6,850, 2 short Sep ES futures contracts, 2 Long Sep ES $1,000 strike call options on the futures contract marked at $31.50 each, with the cash index at $1,006.  Also assume that at time 'X+1' the cash index increases by 100 points or approximately 10%.  A snapshot of the account equity and margin balances for each date is reflected in the table below.

*Note: the contract multiplier for the ES future and option is 50.

As reflected in the table above, the projected effect of this market move would be to decrease the cash balance to a deficit level based upon the mark-to-market or variation on the futures contracts of $10,000 (100 * 50 * 2). While the effect of this upon equity would be largely offset by a $7,150 increase in the market value of the long calls, the unrealized gain on the options has no effect upon cash until such time they are either sold, exercised or expire.  In this instance, IB would act to liquidate positions in an amount sufficient to eliminate the cash deficit while maintaining margin compliance and attempting to preserve the greatest level of account equity.

While hypothetical in nature, this sample portfolio is intended to be illustrative of the liquidity risk associated with any portfolio containing futures and long options where the funding of any variation on the futures position must be supported by available cash or buying power from the securities segment of the account and not unrealized option gains.

The rejection of an ACATS transfer request is typically initiated by action of the delivering broker once that broker has had an opportunity to review the request and confirm the details of the account to be transferred.  In the case of certain rejection notices (i.e., categories 1-5 and 10 below), the ACATS process affords the receiving broker (IB) a 24-hour window within which revised information may be transmitted and after which time the transfer request will require resubmission by the client.  During this 24-hour window, IB will attempt to contact the transferring client in an effort to reconcile any discrepancies causing the initial rejection notice. Rejections generally fall into the following categories:

1. Social Security Number/Tax ID Mismatch - the client taxpayer identification number as provided by the receiving broker does not agree with that of the delivering broker’s records. 

2. Account Title Mismatch - the client account title as provided by the receiving broker does not agree with that of the delivering broker’s records. 

3. Documentation Needed – the delivering broker requires additional account documentation in order to process a transfer request (e.g., death or marriage legal documents). 

4. Account Flat – account holds no transferable assets. 

5. Invalid Account Number – the client account number as provided by the receiving broker is not on delivering member’s books. 

6. Duplicate – delivering broker is already in receipt of a transfer request involving the same receiving broker and client account..

7. Account in Distribution or Transfer – another ACATS transfer or other distribution of account assets directly to client is already underway. 

8. Client Rescinded – client has submitted written request to cancel transfer request. 

9. Missing Authorization Signature – transfer request requires an additional client and/or custodian signature.

Rejections by the Receiving Broker: 

10. Credit Violation - the result of the transfer if effected would be to place the account in margin deficit and subject to forced liquidation.