When I logged into my account yesterday morning, I had an annoying yellow warning highlighting my “Account” button. I was being warned that I had no “Post-Expiry Excess (predicted)”. No excess is equal to a margin call, but this was only predicted, so I was only being annoyed I couldn’t get the color back to normal. I didn’t have to worry about it yesterday, because the warning was only a prediction. I couldn’t figure out what was different from the day before. I had three weeks before my next options expired, so I didn’t know why IB was panicked into alerting me more than the usual email that I had less than 5% of margin available.
The question was clarified when I woke up. I received an email that said I had an option assignment in my account. Nine of my 10 TLT March $125 calls were assigned. I was forced to sell 900 shares of TLT at $125 after it closed yesterday at $130.86. Due to the distraction of helping my wife of 19 years move out (all amicable), it didn’t dawn on me yesterday that someone was trying to claim the shares before the dividend was due today. It’s working out for me though. While I’ll have to pay the dividend for March that I didn’t expect to pay, TLT is down $2.46 as I write this. The person who exercised the options received the dividend, but if they held the shares more than a few minutes into today, they are losing a lot.
Since I saw the margin call was coming before the markets opened, I was able to get situated and choose what I wanted to sell rather than having something else sell that IB chose. I created a market order to sell half of my SPY shares at the open. I was only about $6,000 short and decided to free up nearly $10,000 to avoid having to do this again soon. I sold 50 shares of SPY at $195.02, but then quickly remembered that only 30% of the value of the SPY position was counted against me for margin maintenance. In other words, I needed to sell more. I waited just a few more seconds and sold my last 50 shares of SPY at $195.24. I received $19,510.57 after paying a total of $2.43 in commission. I took a realized loss of $1,375.53 on the shares, after deducting the premiums from my original naked puts. I sold my SPY shares rather than TLT because I think I have more I can gain from TLT than from SPY in the next few months.
Because TLT was starting to fall again, I was losing more value from my long out of the money calls compared to my short in the money calls. I had done all of my planning to account for how my options would be valued at expiration, but mistakenly, didn’t account for how the premiums would swing against me on my ratio spreads in the months before expiration when time value was still a factor. Although I was hedged, my margin balance was losing ground with each dollar lower for TLT. I thought I should sell more covered puts to bring in more cash, but IB said I didn’t have enough margin to do it. Of course I wasn’t adding risk with this attempted trade. I was scheduling an exit point for my short. The IB system didn’t see it this way. The system saw that I was at risk of having to buy 900 shares if I sold nine new puts.
I was short 1,900 shares of TLT, but only had 10 short puts in play. I figured I’d just shift the strike higher and would have an extra $2,000+ in cash, while cutting the potential profit from my short. If I had rolled my 10 short puts from the $124 strike to the $128 strike, I’d be at risk of buying back 1,000 shares $4.00 higher, but would have another 900 shares that could continue to profit for me with every tick to the downside. However, IB wouldn’t let me roll the puts higher, even though I was short enough shares to cover the puts. I went with Plan B instead.
While TLT was trading at $130.52, I bought to close my 10 TLT May $124 covered puts for $1.16 each and paid $1,164.11 after spending $4.11 in commission. This gave me a realized gain of $231.64. The timing was pretty good, TLT has fallen another $2.10 and the same option is trading for $1.66 now, which means that out of sheer luck, I have $500 more than I would have if the shares weren’t assigned and I decided to close the puts. After buying these puts back, I tried to sell a five new ones, but was blocked again. I figured I needed my trades to settle and I’d try again in a few days.
I was off margin, but wanted to clean up my account more while I was going to be writing a trade update anyway. I lowered my tiny order to dump my long TLT puts from $0.04 to $0.02. While TLT was trading at $130.52, I sold 10 TLT March $120 puts for $0.02 and received $18.52 after paying $1.48 in commission. This was the mistake trade I made recently, so I was glad to get a few bucks back. I took a realized loss of $11.18.
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All of that happened and then I had to leave office before I posted this. When I returned to finish up, I had a pop up on my screen that said I was about to have a forced liquidation at 3:50 due to not being margin compliant. I saw this notice just a few seconds before the system forced my account to liquidate a partial position and I bought 600 shares of TLT for $128.489633 and I paid $77,096.58 including $2.80 in commission. The order hit in three separate transactions of 200 each, which is why the exact price goes so deep after the decimal. I took a realized loss of $1,139.78 on these shares, including the premiums from the naked calls that I received originally.
I’m curious what tomorrow will bring and if I’ll have another margin call. I’m fine with having another forced sale as long as my account gains ground like it did today. Overall, my account is up more than $5,500 today, which is really fun, even if a forced liquidation isn’t.