Wow, they liquidated $90,000 to cover $1,400? Crazy.
Yes. I was…displeased.
A bit of a correction:
My post was purely from memory. I looked it up to refresh that aging memory, to get the actual numbers.
The cash balance in the account was a settled cash deficit of -$684.48 on the day in question.
To cover that liability, their systems liquidated 48 contracts at a price of $16.64 for net proceeds of $79400.
I asked them to mail me a copy of the chat where I grilled them about it.
My plan was to post it so some blog.
But hey, other things to do. Life has other priorities.
Further info for those who might be interested:
The only asset held in the account was Berkshire calls.
With long call options, there is no possibility of an increased liability due to market movements.
My message to them included this bit:
"Basically, I am out $70k because your system wanted $680 from me, and liquidated enough positions
to raise 116 times as much money as was needed to wipe out the deficit, all without telling me".
Besides the foregone gain since then, the contracts were liquidated at a price causing a realized loss of about $48k.
By the time I found out about it, the market value of those contracts was up 84%.
As I noted in my letter to them:
“As is so often the case, almost all the liquidations were on the day of the absolute bottom price for the assets in question.”
For those interested, check out the price chart for Berkshire around 2016-01-25, the day they liquidated.
Do a chart from the year before to two years after.
Lesson: never, ever, use broker margin.
Once you break the rules, which are impenetrable and can change on an hour’s notice, they can do pretty much anything they like.
In their fine print, they mention that they themselves might be the counterparty for the liquidations.
Not specifically an IB issue, I should note.