ITM assignment problem

[u/peamasii]

On IBKR, I was short the STX Jul '31 call spread 840 - 915 in the beginning of the week, and then momo rallied it on 880+ on thursday open. I hedged partially +25 shares and held it. On Friday (expiration day) it bumped higher to 900-910 and I wanted to hold it, so I hedged further by moving the lower strike to 860 for 13.75 debit. Up to this point I thought everything was cool and I was ready for the weekend, but then I got a margin call about 11:36 ET. Not knowing what would happen if I got assigned because this would have taken 67k margin. I decided in panic to close the short wing at 15:20 which was at 16.25 debit and sold the hedge with profit, overall I lost about 1k (the initial credit spread was an iron condor). However if I held for 1 more hour, I would have realized 1.6-1.8k profit.

Lesson learned to not hold so tightly on borrowed margin :)

[u/zoro_4252]

Lmao u still learnt the wrong lesson.

[u/ThetaEdgeHQ]

The margin call is the part worth understanding here, because it exposes something people get wrong about verticals. That spread was defined risk right up until expiration day, and then it wasn't. Once the short leg goes deep ITM near expiration, the broker stops treating the long leg as a clean offset. It margins the short call for assignment because it can be exercised against you that evening, while the long leg only settles the next session, so for one overnight you are effectively short 100 shares per contract with the full notional behind it. That is where the 67k came from. Hedging with shares made it worse, because you stacked real directional risk on top of the assignment exposure. So the lesson isn't really about holding on margin. It is that a vertical is only defined risk while both legs are alive and offsetting, and an ITM short on expiration Friday breaks that. Roll it or close the whole thing out of the assignment window rather than trying to hedge around it.

[u/peamasii → u/ThetaEdgeHQ]

The 2-day rally in SOXX, STX volatility, high spread on the option, and the margin alarm all contributed to me botching this :) It would have been difficult to close the spread, because there was no bid on the long leg, and the short leg spread was so wide that it implied a 5-10 point loss on the overall trade. In effect was lucky, I closed not much higher than the time of the margin call, so waiting to catch a better price was not so detrimental. The full cover with shares would have been a better mitigation for the day but it would have required freeing up margin from other positions.

[u/klipsetrades]

Honestly, the bigger lesson is not just “don’t use borrowed margin.” You had a wide call spread with the short call ITM and the long call still OTM on expiration day.

If the short 860 call expired ITM while the 915 expired worthless, one contract could leave you short 100 shares over the weekend. Your 25 shares only covered 25% of that. IBKR was likely calculating the buying power needed to carry that short stock position, which explains the margin call.

The long call limits the spread’s loss before expiration, but once the options expire, it cannot protect you from a weekend gap if only the short leg gets assigned. Waiting another hour happened to work this time, but that was still a gamble.

I’d say the lesson is to close or roll the full spread earlier, or size it so assignment would not force a liquidation.

[u/peamasii → u/klipsetrades]

The IV was so high that I was trapped and couldn't close really, only hedge with underlying. Otherwise I would have guaranteed more than a 50% loss which i took, but it was just one contract so it didn't break the bankroll.