Do liquidation trades executed by IBKR count as day trades?
Overview:
Yes, if a position that is opened is subsequently closed in the same trading session (day), it is defined as a Pattern Day Trade. If an IBKR liquidation results in the closing of a position that was opened in that same session/day, it would be counted towards the Pattern Day Trade total. This could also result in the account being flagged as a Pattern Day Trade account.
Will IBKR delay liquidation while I deposit funds in my account?
Overview:
IBKR's margin compliance policy does not allow for transfers or other deposits if there is a margin violation/deficit in the account. In the case of a margin violation/deficit, the account in deficit is immediately subject to liquidation. Automated liquidations are accomplished with market orders, and any/all positions in the account can be liquidated. There are cases where, due to specific market conditions, a deficit is better addressed via a manual liquidation.
Funds deposited or wired into the account are not taken into consideration from a risk standpoint until those funds have cleared all the appropriate funds and banking channels and are officially in the account. The liquidation system is automated and programmed to act immediately if there is a margin violation/deficit.
Note for Prime Clients: Executing away is not a means to resolve real time deficits as away trades will not be taken into consideration for beneficial margin purposes until 9 pm ET on Trade Date or when the trades have been reported and matched with external confirms, whichever is later. Trading away for expiring options, on expiration day, is also discouraged due to the potential for late or inaccurate reporting which can lead to erroneous margin calculations or incorrect exercise and assignment activity. Clients who wish to trade expiring options on expiration day and away from IB, must load their FTP file no later than 2:50 pm ET, and do so at their own risk.
I want my liquidated position to be reinstated.
Overview:
IBKR employs a proprietary algorithm which identifies positions for liquidation. This is a complicated formula which seeks always to make the best possible liquidation. There are numerous factors involved in the liquidation algorithm which are taken into account prior to the creation of a liquidation trade.
Background:
Your liquidated securities, if part of a valid liquidation, will not be taken back, or reinstated. Going forward, I want to point you towards a feature that might be of help. In the Account Window, under Portfolio, you will have your positions listed. You can highlight a position that you would prefer not be liquidated prior to others in the account in the event of a liquidation, by left-clicking it. Once this position is highlighted, right-click on the line. In the box which appears choose “Set Liquidate Last”. This feature allows you to mark those positions which you would prefer to hold over others. IBKR will try to honor those requests, but this is merely a request and we cannot guarantee that the chosen position won’t be liquidated.
Options Assignment Prior to Expiration
An American-Style option seller (writer) may be assigned an exercise at any time until the option expires. This means that the option writer is subject to being assigned at any time after he or she has written the option until the option expires or until the option contract writer closes out his or her position by buying it back to close. Early exercise happens when the owner of a call or put invokes his or her rights before expiration. As the option seller, you have no control over assignment, and it is impossible to know exactly when this could happen. Generally, assignment risk becomes greater closer to expiration, however even with that being said, assignment can still happen at any time when trading American-Style Options.
Short Put
When selling a put, the seller has the obligation to buy the underlying stock or asset at a given price (Strike Price) within a specified window of time (Expiration date). If the strike price of the option is below the current market price of the stock, the option holder does not gain value putting the stock to the seller because the market value is greater than the strike price. Conversely, If the strike price of the option is above the current market price of the stock, the option seller will be at assignment risk.
Short Call
Selling a call gives the right to the call owner to buy or “call” stock away from the seller within a given time frame. If the market price of the stock is below the strike price of the option, the call holder has no advantage to call stock away at higher than market value. If the market value of the stock is greater than the strike price, the option holder can call away the stock at a lower than market value price. Short calls are at assignment risk when they are in the money or if there is a dividend coming up and the extrinsic value of the short call is less than the dividend.
What happens to these options?
If a short call is assigned, the short call holder will be assigned short shares of stock. For example, if the stock of ABC company is trading at $55 and a short call at the $50 strike is assigned, the short call would be converted to short shares of stock at $50. The account holder could then decide to close the short position by purchasing the stock back at the market price of $55. The net loss would be $500 for the 100 shares, less credit received from selling the call initially.
If a short put is assigned, the short put holder would now be long shares of stock at the put strike price. For example, with the stock of XYZ trading at $90, the short put seller is assigned shares of stock at the strike of $96. The put seller is responsible for buying shares of stock above the market price at their strike of $96. Assuming, the account holder closes the long stock position at $90, the net loss would be $600 for 100 shares, less credit received from selling the put originally.
Margin Deficit from the option assignment
If the assignment takes place prior to expiration and the stock position results in a margin deficit, then consistent with our margin policy accounts are subject to automated liquidation in order to bring the account into margin compliance. Liquidations are not confined to only shares that resulted from the option position.
Additionally, for accounts that are assigned on the short leg of an option spread, IBKR will NOT act to exercise a long option held in the account. IBKR cannot presume the intentions of the long option holder, and the exercise of the long option prior to expiration will forfeit the time value of the option, which could be realized via the sale of the option.
Post Expiration Exposure, Corporate Action and Ex-Dividend Events
Interactive Brokers has proactive steps to mitigate risk, based upon certain expiration or corporate action related events. For more information about our expiration policy, please review the Knowledge Base Article "Expiration & Corporate Action Related Liquidations".
Account holders should refer to the Characteristics and Risks of Standardized Options disclosure document which is provided by IBKR to every option eligible client at the point of application and which clearly spells out the risks of assignment. This document is also available online at the OCC's web site.
What happens to the USD equity option that I am long at expiration?
Overview:
There are two scenarios which could occur if a long option is taken to expiration. If the option is out-of-the-money at expiration and you do not choose to exercise it, the option will expire worthless, and your losses will consist of the premium that was paid to acquire the option. If the option is in-the-money at expiration by 0.01 or more, it will be automatically exercised on your behalf (unless you previously chose to lapse the option) by the Options Clearing Corporation (OCC). The OCC processes monthly expiration options on the third Saturday of the month, or the day after Friday expiration. The resulting long or short position will be put into the account, effective on the Friday trade date. If the account has sufficient margin to satisfy the requirement on the resulting position, it will then be up to the account holder to decide what they want to do with the position. If the resulting position causes a margin deficit, the account will be subject to liquidation at a time which is defined by the holdings within the account. Please be aware that any positions could be liquidated as a result of the account being in margin violation—the liquidation is not confined to only the shares that resulted from the option position. For example, if the account holds currency, futures, future options positions or and non-USD product, the account may begin to liquidate to meet the margin deficit as soon as a corresponding market opens.
Background:
Account holders should refer to the Characteristics and Risks of Standardized Options disclosure document which is provided by IBKR to every option eligible client at the point of application and which clearly spells out the risks of assignment. This document is also available online at OCC's web site.
Why did IBKR force liquidate positions in my cash account?
Overview:
Position liquidations within a cash account generally result from one of the following two situations:
1. The account incurs a negative, or debit, cash balance due to the assessment of fees for items such as market data subscriptions or monthly minimums. As a cash account, by definition, is precluded from holding a negative cash balances in any currency, the existence of a negative balance will result in IB force liquidating positions. Note that our system is designed to liquidate positions in a minimum of 100 share increments.
2. A long equity call or put option was automatically exercised by the clearinghouse. In the case of US security options, the Options Clearing Corporation (OCC) will automatically exercise all equity options at expiration which are in-the-money by $0.01 or more (see OCC Rule 1804). If this is a long put exercise and you do not have an existing long stock position in your account, the short position delivered upon exercise will be closed out as cash accounts cannot maintain a short stock position
If this is a long call exercise (not offset by the simultaneous assignment of a short call which is part of a spread) and your account does not maintain sufficient settled cash to cover the cost of the stock plus commissions, a forced liquidation will take place typically upon the market open of the next business day. Again, this is due to the fact that a cash account may not hold a negative cash balances in any currency.
