Weekend Updates

  • Posted: 19 August 2012 01:17 AM #106

    Mav - 19 August 2012 12:18 AM

    Sounds like a fun Friday.  :D

    I should talk to my broker about auto-exercise on Monday.

    In the meantime, hey, you made anywhere from pretty good to serious money on the trade.  So go nuts, beat yourself up with all those crisp dollar bills.  LOL

    Most brokerages (depending on the financial health of your account) will auto Close positions that have a possibility of requiring more funds than is available in the account.  They do this in the last hour before the Close, and only if they don’t see you online, monitoring your account.

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    Posted: 19 August 2012 01:20 AM #107

    Red Shirted Ensign - 19 August 2012 04:14 AM

    Mav is absolutely right. I had the same thing happen in a divvy capture play.  If you had acted fast enough you could have had the purchased shares cross with the called shares and avoided a basis change on your original shares..

    Actually, not only did I hear about this from iPad, I asked my broker about this once in some detail.  Call exercise isn’t an instantaneous process.  I’m pretty sure you have time to call your broker after market close to exercise your long calls (“full offset” or something like that) and pay some nominal charge to get everything squared away.

    If you only have 10 shares of stock at the moment, that’s not enough to take care of even one contract.  I don’t see why your brokerage wouldn’t automatically look at those long calls in the BCS to balance everything out.

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  • Posted: 19 August 2012 01:35 AM #108

    I have a buddy that has an account with ameritrade. He had 4 August BCS of 580-585.  His top end was exercised on or around the ex dividend date. Ameritrade did not notify him of this until the day after exdividend date. He was stuck selling his bottom call and also had to pay the exerciser the dividend. So his deep in the money BCS ended up costing him $7k because of ameritrade.  I will never buy options dated in the same month as an apple exdividend date. Ameritrade had no real answer for my friend.

    I was really surprised the broker doesn’t require the bottom half to sell any time the top half is exercised and it’s obvious you don’t have the money in the account.

         
  • Posted: 19 August 2012 02:09 AM #109

    Mav - 19 August 2012 04:00 AM

    Huh?

    You have a BCS.  Exercise the long calls against the short calls - you “won the game” because you now have full value on the BCS for as many short calls as were exercised.  It’s not like those 10 shares would be enough to fill the call exercise anyway.  You should get in touch with your broker about this ASAP.

    It happened on Aug 13th, the day to register for the dividend.
    I use Interactive brokers, and that morning I got a margin call for my account.
    Basically, my short leg has already been called away and I have -590 shares and tons of money in my account.
    I was in panic as I have never had option exercised on me. In a hurry, I bought 600 shares and then sold my Sep long legs.
    I don’t know why interactive brokers did not just close out my spreads.

         
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    Posted: 19 August 2012 02:10 AM #110

    JDSoCal - 19 August 2012 04:08 AM
    lovemyipad - 19 August 2012 12:57 AM
    JDSoCal - 19 August 2012 12:30 AM

    How would that “auto” exercise trigger without the margin to cover it?
    (...)

    You have until settlement to cover the cost.  If by then you don’t have the cash or margin, they’ll liquidate to cover the debit balance and fees.

    According to Schwab, they will only do it if you have margin enabled and can cover the trade within your margin limits. Hard to understand why any broker would do it otherwise, especially in an IRA where you have contribution limits.

    I should call Fidelity and ask what they do, but every time I call, I end up getting irritated at their stupid system that separates all positions into “cash” versus “margin,” and since spreads are “margin,” then you have positions held in “margin” in your IRA even though *IRAs don’t have margin*!

    OptionsXpress and TradeMonster do NOT have this stupid system glitch, AND you can STO and BTC calls on the same day—which, by extension, means you can day trade intact spreads.  But not Fidelity…noooo.  See, every time I even THINK about calling them, I get irritated.  Blah.

         
  • Posted: 19 August 2012 08:05 AM #111

    In many brokerage firms, the issue JD brings up is correct about long calls in IRAs potentially not only not having enough cash to cover an automatically exercised in-the-money call.  I had to sign a separate agreement with my broker specifically for that - it had to be drawn up by his internal legal team.  They do not allow IRAs to buy calls without the agreement because you (obviously) cannot fund it by just adding dollars given that it is an IRA.  I had to agree that if at expiration the call was in the money, it would go to a zero value if I did nothing with it.  Not sure how they would mechanically achieve this but I have my suspicions.
    The truth is that with any options - even in a regular account - given the size you play (or at least that I play) - I would guess that if you had to exercise your options to pay for stock in full - it would be a huge problem and for me, it would be completely unaffordable…which is why I play options to begin with- because of the leverage it affords me.  But no one should think that this awful stuff doesn’t happen to people who are unaware of risks associated with options.  You can get wiped out pretty fast. The error I made was small but it was (no other word for it) completely stupid and irresponsible on my part. Forget the penalty box…I should have been escorted out of the arena and slapped around at that point…lesson learned.

    [ Edited: 19 August 2012 08:47 AM by Phoebear611 ]

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  • Posted: 19 August 2012 08:48 AM #112

    NYT article today that the Germans are warming up to the referendum that would allow them to constitutionally aid Europe…could be positive for the markets in general:
    http://mobile.nytimes.com/2012/08/19/world/europe/referendum-on-europe-gains-support-in-germany.xml

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  • Posted: 19 August 2012 10:22 AM #113

    Phoebear611 - 19 August 2012 11:48 AM

    NYT article today that the Germans are warming up to the referendum that would allow them to constitutionally aid Europe…could be positive for the markets in general:
    http://mobile.nytimes.com/2012/08/19/world/europe/referendum-on-europe-gains-support-in-germany.xml

    Unfortunately, before such a referendum could happen, on Sept 12th Germany’s highest court will be ruling on the constitutionality of the latest euro-wide deal and also Germany’s 20 billion plus euro emergency backstop commitment, both of which were passed by Parliament on June 29th. A negative ruling would immediately remove Germany from the latest PIIGS support efforts, and likely cause serious damage to market confidence worldwide.

    And from what I’ve read about the case, a negative ruling is a real possibility. And that is, of course, why there is now a push to change the German Constitution. But such a referendum is highly unlikely to be implemented before Sept 12th—and the result of such a referendum is also far from certain.

    Bottom line: Much danger still lies ahead!

         
  • Posted: 19 August 2012 11:22 AM #114

    Mav - 18 August 2012 11:29 PM

    Just a change of position?

    Yes.

         
  • Posted: 19 August 2012 11:25 AM #115

    lovemyipad - 19 August 2012 12:05 AM

    It’s like chess.

    Ouch! I was always lousy at chess…

         
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    Posted: 19 August 2012 11:37 AM #116

    After reviewing the last few weeks, I have to say I feel like the USS AAPL has sailed and I’ m still standing on pier # 580.

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  • Posted: 19 August 2012 12:50 PM #117

    rickag - 19 August 2012 02:37 PM

    After reviewing the last few weeks, I have to say I feel like the USS AAPL has sailed and I’ m still standing on pier # 580.

    Me too but I’m not too worried.  The more rosy everything looks, the closer we are to the market throwing us a curveball.  And as much as I’m a fan of PE expansion I think there’s only so far we can go on that front too.  We’re running through a rocky AAPL quarter most likely and numbers will leak.  Europe is still a mess. And the more gype builds over Sept 12, the steeper the Sell The News reaction will be.

    I’m long common but out of the game on anything else, waiting patiently for the next inevitable WTF Sale.

         
  • Posted: 19 August 2012 01:16 PM #118

    huskerrx - 19 August 2012 04:35 AM

    I have a buddy that has an account with ameritrade. He had 4 August BCS of 580-585.  His top end was exercised on or around the ex dividend date. Ameritrade did not notify him of this until the day after exdividend date. He was stuck selling his bottom call and also had to pay the exerciser the dividend. So his deep in the money BCS ended up costing him $7k because of ameritrade.  I will never buy options dated in the same month as an apple exdividend date. Ameritrade had no real answer for my friend.

    I was really surprised the broker doesn’t require the bottom half to sell any time the top half is exercised and it’s obvious you don’t have the money in the account.

    Ameritrade is the worst.

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  • Posted: 19 August 2012 01:25 PM #119

    Phoebear611 - 19 August 2012 11:48 AM

    NYT article today that the Germans are warming up to the referendum that would allow them to constitutionally aid Europe…could be positive for the markets in general:
    http://mobile.nytimes.com/2012/08/19/world/europe/referendum-on-europe-gains-support-in-germany.xml

    Looks like Hitler’s designs to be overlord of Europe is coming true, 80 years after he dreamed of it.  Considering Germany’s national aversion to debt, this could be a good thing.

    Merkel for President on an Independent ticket.

    [ Edited: 19 August 2012 01:27 PM by Gregg Thurman ]

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  • Posted: 19 August 2012 02:40 PM #120

    I just noticed that AMZN’s PE is 295.  I am just blown away.  Is this an all time high or has anyone seen this higher.  I just don’t get it at so many levels.

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