I am looking at a dotm bear put, 6 months, 5$wide, for 1.1$ mid. I have only traded 1 contract max size on spx strategies (mostly verticals), as spx is big $ enough for me. My concern is on risk of bid/ask variation of pnl. During 2020 volatility, on my TWS I saw the unrealised PnL going crazy, on some 10$wide verticals atm. But again, it was a 1 contract vertical spread so no big deal at the time, I could wait it out. Now, If I bought x5, x10... contracts, of this 1.1$ debit spread, should I have to worry about the PnL variation in case the market goes crazy? Can this variation cause a margin call, even if the spread is debited and just 5$-10$ wide?
I've had that happen at IB. Not in 2020, but during the 2008-09 meltdown in some of the overnight sessions we went limit down on the SP and it wasn't good. At IB, it's just a computer trying to value your positions and then auto liquidating if certain conditions are met. More than 99% of the time things work just fine, but in a super fast market where prices can be difficult to obtain it can be very unpredictable. Not only are you potentially getting sold out involuntarily, but the liquidation price may also be very very far away from market value depending on when and how you get liquidated. It was educational and painful enough for me that it will not happen again in my trading life.
Thanks. I might widen the spread How do you make sure it won't happen again? Size management, changed broker...?
I still use IB. I don't really fault them given the scope and entirety of the way the market gyrated during that time. I never really traded naked positions, but I had some decent downside exposure. These days when I go to bed, I look at my positions and ask myself if I'm ok waking up limit down on the SP.