TDA messing up my closing order

Michael B

Member
I had a RUT calendar expiring today.
In the morning my position was at a loss, but RUT was going up (this was good) and my intention was to wait and see. I placed a closing order for 3.50 credit, but didn’t have a lot of hope.

At 10:33 got a call from TDA to remind me about the expiring position. I explained that I'm aware of the expiration and that I will take care of it towards the end of the day one way or another.

I had the same position in two other accounts (IB and Tastytrade), but I was not sitting at my computer. At around 11:30 I check the computer and see that IB and Tasty filled my closing orders at 3.50 credit, but TDA filled it at 2.36. What??? When I look closer TDA cancelled my order at 10:45 and closed the position probably at market for 2.36 credit. That was about 10 min after I had the discussion with their agent. And 25 min later RUT reached higher and my IB and Tasty orders got filled at my price.

TDA closing orders
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IB closing order for 4 contracts
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Tastytrade closing order for 4 contracts
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I called TDA and the guy said that my acct was too small to support the assignment of the short leg and they always take this kind of action to protect themselves. I said, well this is an index, on one hand it’s cash settled and then you also have the long leg to work with. He said no, there’s too much risk, they cannot afford to do this. He mentioned there is nothing that can be done, his advice was that I put more money in the acct. I said I’m happy I only have a small acct with them, otherwise my position would have been larger and they would have produced more damage.

Have things like this happened to you? For me it's a first.
 

Marcas

Active member
It didn't happen to me. Few times my orders were placed as Market where I sent them as Limit, but it could be my mistake (likely).

What you are saying is horrible. I'd ask about any legal documents that allow them to do such. I guess they don't have clear rules for that.
Wonder if that is a function of Schwab's deal.

In the past I had issues with platform dealing with my time-spread related orders but after short call and explanation all was cleared. That was a good few years ago.

Thanks for warning.
 

status1

Active member
I know Tradier requires 300K account to even consider trading calendars that's why I closed my account with them
I am surprised that TD seems to be going down that road

Just wondering how much overhead you have in your account maybe that was the problem You don't want to trade at near the max of your account size or try to take off the trade before expiration day but I understand sometimes that means you have to lock in a loss
 

Michael B

Member
I have a small acct with TDA just to be able to keep using TOS and I place up to four similar calendars each week. What was different this time is I stayed in the trade till the last day.
Yesterday when this happened my acct was around 3200 and I had those two RUT calendars. The debit to enter was 3.30 per calendar. A week or two ago I placed a calendar for NDX and paid a debit of 17.5 and they let me do that one. In my mind NDX was much more riskier that RUT.

When you place the index calendar there is no buying power reduction displayed. I don't know if the same is true for stocks as I don't trade calendars with stocks.
 

status1

Active member
Sounds to me like that should have been fine I would contact them for a more detailed explanation as to why exactly was that change made ? Also try to find out if there is a certain policy that makes this determination or is it something arbitrary that the guy just made
I would contact them by email that way you have a record of exactly what they said in case someone tries to deny or change the answer
 

Tb2018

Member
I know it feels bad...but remember if your account size is very small........this could happen .
If you trade options actively with a sub 5000 usd account...there is no real incentive for them to keep you on board.
I know sounds bad! ...but let's be realistic some will charge you 500 a month just for having the same amount of data and software of
much lower capabilities.
Having said that I would follow status 1 advice...but looks like your" loss" is 110usd! .
TIME IS MONEY!
and: "There ain't no such thing as a free lunch"

Salut
 

Dan M

New member
Gold Member
I have had TOS close me out of equity options (never index) on the afternoon of expiration. They told me they are concerned about the assignment risk on the account, however they said if you are going to actively manage, then call them that morning and they will put a note on the account to that effect so no one closes you out early, but don't let it go too long as they will still close you out at some point.
 

Michael B

Member
I contacted TDA and they replied:

Index calendars are not defined risk since they cash settle and you are not able to exercise early. They different from equity calendars in that after assignment on an equity calendar you have two pieces that move in opposite directions and you are hedged. With an equity calendar assignment you have a settled debit with protection that can lose 100% of its value. There is no way to predict the value of the long option between settlement periods.
For index option calendars that are cash settled we ask that you exit the position early in the morning on the day the short leg expires if the assignment will create a debit in your account.


I asked for a link to that guideline.
 

Michael B

Member
They directed me to the client Agreement, section 10.
The last two paragraphs come close, but the description is still vague to me and leaves room for interpretation. I doubt escalating this through FINRA would have any success and my loss is too little to be worth the effort. Even if they have this policy I'm more upset that they did this at a moment when the situation was not pressing at all.

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status1

Active member
Thanks for following up with this
At least now we know what the rule is at TD
I was just wondering if you have a higher account at IB and Tastytrade and maybe that is why they did not enforce this rule or maybe TD was a little more aggressive in enforcing it but that is probably not something you can win on

So you would need at least a little over $7800 in your account to buy back the short put in order to stay in the trade at expiration of a calendar Another option you would have is to roll the short to the same expiration as the long so that way you have a vertical so it's still a defined risk trade
 

Michael B

Member
So you would need at least a little over $7800 in your account to buy back the short put in order to stay in the trade at expiration of a calendar Another option you would have is to roll the short to the same expiration as the long so that way you have a vertical so it's still a defined risk trade
Yes, roughly that amount would have been needed to comply with their requirement. It was not there.
Since I did not know how they treat this, I was not looking for a way to avoid closing the full trade. The RUT was climbing in my favor and was willing to wait till closer to end of day. I would have closed the whole trade at a loss eventually, it wouldn't have been the first time, but wanted to be the one who decides this and when.

I tried to find out how Tastytrade treats such a situation and I'm tired of going back and forth with their customer service guy. This is the closest to a clear answer he came up so far.

The Buying Power requirement for a Calendar will be debit paid for it. Since Cash-Settled Index Options have no assignment risk, our Margin Department will not take action, to liquidate a position that is expiring.

If your Short Option expires in the money, it will simply be allowed to be assigned, and the difference of the Settlement price and your Short Strike, will be debited from your account.

The Long Option will remain in the account, and will allowed to be exercised, if it too expired ITM.


Yes, I explained to him the acct did not have enough funds to cover that, but he seems to ignore this detail.
 

status1

Active member
If your Short Option expires in the money, it will simply be allowed to be assigned, and the difference of the Settlement price and your Short Strike, will be debited from your account.
Yes, I explained to him the acct did not have enough funds to cover that, but he seems to ignore this detail.
I would follow up with a hypothetical question something like what happens if there is not enough cash in the account
Maybe the guy is not concerned because he sees that there is enough cash in the account for this trade or maybe they will just send you a margin call or close the long side to raise the cash needed to cover the debit
I am pretty sure they are not going to give you a free loan to cover the debit
 

Michael B

Member
I finally had a phone conversation with the Tastytrade agent. After a lot of back and forth talk and some consulting with the margin department or something like that he said that if the calendar is in the money on expiration day and the acct does not have enough funds to cover the cash settlement of the short leg, then they will close the position entirely sometime within the last 20 min of the trading day unless you call them to let them know you are watching it.

He said that even if you have enough funds to cover the settlement of the short leg, this is not a good move if the long expires next trading day, because next day the market may gap against you and the long position could move closer to the money, so the total loss would exceed the initial debit paid.

He also said he’s not aware of any situation when Tastytrade closed a calendar trade in a cash settled index.
 

Marcas

Active member
Michael B, thanks for sharing the experience.
I understand broker's position. They care about their exposure and other things, your p&l comes somewhere at the end of the list (if at all). What is very annoying is when we, as traders, meet situation we didn't anticipated. Your warning is helpful.

I remember at one time I started trading smaller account and was caught by surprise when TOS locked my trading abilities due to Day Trading Rule. In theo I knew about this but didn't pay attention for so long that I simply forgot about it. So, in some sense, it was similar situation to yours.

I do not know how it is now, but in the past TOS was one of the best in client relations. Paul Demers shared amazing story how TOS helped him out. I read couple traders complaining about harshness of trading with IB in turbulent times.

All is good when you are not surprised with what brokers does to your account.
 
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