Liquidation for multi-legged options

pcwSg
2023-10-26

As someone with a small account and always allocating almost all funds into something, liquidation is very common... [Cry]  [Cry]  

However, for multi-legged options, would like to see both legs liquidated together.

Liquidation already feels bad for a trader, being liquidated in an inefficient/illogical way feels worse...[Mybad]  [Mybad]  

Recent liquidation

Did a CALL Credit spread on $SPDR S&P 500 ETF Trust(SPY)$ . Only did 1 contract each to test out the multi-legged system, therefore dollar amount loss is very small. [Victory]  [Victory]  

The liquidation

The 424 CALL in Orange got liquidated:

Liquidations happens mostly at the peaks since they are market filled and when there is a surprise move, increasing implied volatility.[Gosh]  [Gosh]  

This liquidation caused a loss of 32-68=(-$36)

However, because the buy leg of the spread was left alone, the total loss was 36+11=$47 [Heartbreak]  [Heartbreak]  

Best case

If the buy leg was liquidated together at the same point in time at peak price of 0.22, the loss would have been 36+(11-22)=$25 [Love]  [Love]  

Summary

One can argue that if the trader wants the best case, the trader should manually liquidate the positions before broker liquidation happens.[Eye]  [Eye]  

However, it would be nice if combos can be recognised and liquidated at the same time as that is the preferred action in most situations.[Salute]  [Salute]  

Modified in.2023-10-26
Options Hub
Welcome to Tiger Options Hub! Here you may talk and learn about all things on options trading!
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

  • Bonta
    2023-10-26
    Bonta
    Unless dun mind and prepared for assignment, its safer to close the position before market close.
    • pcwSg
      thanks for the sharing and good advice.

      problem is spreads are normally "set and forget" because of limited risk... just hope Tiger will consider liquidating whole combos if margin hits because that is the most logical action.

      still, closing positions manually on expiry day is good advice

  • Bonta
    2023-10-26
    Bonta
    Be careful when holding option spreads to expiration. The buy leg cant protect against assignment. Do note that option market close first, whereas stock market still has after market movement. What may seem safe may not be safe.
  • Bonta
    2023-10-26
    Bonta
    https://www.nasdaq.com/articles/automatic-exercise-after-hours-risk-and-other-options-expiration-issues-2010-11-18?amp
  • Agedashi
    05-27
    Agedashi
    Tiger should not be trigger happy and liquidate account just becoz one leg got triggered.
Leave a comment
5
9