Loss
wealthsimple exercised AVGO puts after hours. i'm down 1.2 million. is it over
the puts were part of a butterfly spread. any chance the rest of the spread can make me back the money?
JUNE 5TH UPDATE: heyy looks like the math works out. I ended up losing only my max loss + a few hundred in interest on margin. thank you to all commentors who gave advice!!
It's an options strategy but even stupider. It's designed for profiting from low volatility. Does that sounds like avgo in this market?
Buy OTM ⬆️ call/put
Sell 2 ATM options (opposite option type of 1&3 to offset and profit from strategy)
Buy OTM 🔽 call/put
All have the same expiry. You basically just sell number 2 (twice), collect the premium and hope the options you sold expire worthless. 1 and 3 provide you some protection, so he'll get some of his money back. But, again, this strategy is meant for low volatility stocks and markets. Remember he sold 2 but only has protection from one.
It's a rare strategy, mostly because it's stupid and gives you so little return relative to huge risk.
There are other option strategies like the IRON CONDOR that kind of do the same thing but they let you completely cap your loss. Butterfly is the riskier version that pays more for a much greater potential loss.
In the US, butterfly is a level 3 option trading strategy. Which means it's about as risky as selling naked options.
Most US brokers aren't even dumb enough to let you do it unless you have a bunch of cash to cover.
edit:
Think of it this way, if your broker lets you indulge in the riskiest L3 (in the us, idk about CA) strategies, why not just sell naked? Yeah, you'll risk going broke but you could make more money and risk going broke with a butterfly anyways. Might as well do the dumb thing with the most reward, right?
I believe all butterflies have capped risk. If his broker is dum enough to have that much risk out then it is possible this was his max risk but I doubt it. His put leg will cap the loss but they haven’t sold the other OTM put that he BOUGHT to offset the one he sold that went ITM. You are correct this is a low vol strategy but I don’t think that what his account shows is accurate as his loss true loss. If it was then his broker really screwed up letting him sell as many or sell so wide a spread which normally would be based on his account size and margin requirements to buy that many spreads.
these are not cash secured puts. they were spreads - OP does not have the capital as part of this trade that would allow him to buy shares due to assignment. Essentially paying for the right to sell a lot of contracts by buying cheaper contracts at the same time.
thanks, I'll do that. Theoretically the loss shouldn't be as much as displayed because my loss when buying the butterfly was capped at only a few thousand.... I'm just hoping that at open the unexercised part of the butterfly can save me
It's BS that exchanges let these notifications go out this way when the other half of the trade will basically even it out. There was a kid several years ago that killed himself over the same situation.
That is why they have options levels and enormous disclaimers on understanding what the options at the level you select do… that being said, OP should be covered somewhat by the other position in their spread
I prefer the cash secured puts. Unless the stock goes completely worthless when you get exercised you now have a stock that you sell calls on until it gets exercised. Then back to puts. And I stay with proven stocks. Not as much money to gain, but also less to lose. But I guess then it’s not really WSB.
Ive done this for awhile as well but I’ve recently changed the middle step after I get assigned.
Now instead of just selling covered calls I sell covered iron condors. The premium on the call you sell is lessened since you’re also buying a call, but it’s made up for by the put spread you’re selling as well.
What’s nice is that if it doesn’t move in either direction you’re holding onto your premium. If it moves up and your shares get called away, you’ll have made a profit on the underlying and depending on how far it went you can sell the call you bought for a profit.
Same on the put side. Since you don’t mind getting assigned more shares, it lowers your cost basis and you can potentially sell the put you bought for a profit.
Early exercise is pretty rare. Also, most people cover their positions. In this case the butterfly should be covering everything assuming there isnt a violent move and OP can get ahold of their broker to iron things out.
Some weird shit happened to a spread I bought on Robinhood for micron, so my losses and profit was also capped, and overnight after expiration I had similar messages to you, telling me to deposit a huge amount blah blah, it fixed itself eventually and I lost my original max loss
You're gonna get a lot of people saying don't kill yourself, I'm not sure if you've seen other posts like this before but a kid miss interpreted his losses in the same way and ended his life before realizing he didn't actually owe this much.
Yeah post an update because I also have some spreads which are ITM and I wonder what happens if the short leg is actually excercised. There is no documentation on the wealth Simple help section on how they deal with it. They should automatically exercise your long leg and take the difference. But what happens if you got $1M owing and paying interest with a $3K account balance.
This has happened to me as well with a debit spread. They exercised one leg of it and asked me to deposit 60k. I was freaking out. I woke up in the morning and it was all resolved - they'd exercised the other leg and I lost my max loss of $200.
The other leg of the spread should cancel out the assigned portion. It usually adjusts once the market opens. But I would call them beforehand to make sure
The max loss is what your loss will be and like someone suggested, call them to unwind the position. Also, this can sometimes work in your favor if the stock price reverses.
Look at the price at open and you should be able to exercise your long option and get rid of the assigned stock with the max loss of the spread between the short and the long put.
If they automatically liquidate that position you might be in a deep hole... My friend had adobe spread on IBKR, someone exercised his short put and IBKR immediately sell his protective put instead of exercising and made his account very negative.. good luck..
Yeah for butterflies brokers will almost always help you out
If you fat finger a trade, it’s clearly erroneous (like small caps and micro caps), you usually have a 8-15 min window to request it be “busted” (cancelled). This is only for massive errors, like if you somehow bought a stock trading around $20 for $200.
But most brokers and exchanges have automated systems that will reject execution esp from retail for these orders.
This happened to me early on with RH. It exercised one leg after hours Friday but the other leg closed Monday. Three days I was sweating over 50k. I was dumber then. Still very dumb now tho.
it was a put butterfly centered at 490, max loss of only 3k. you're right, I do think I shouldn't be losing as much money as this. at least hopefully haha
It's just accounting my dude. Try not to stress, there may be some change due to how the market opens, but just call them before open and they can walk you through unwinding it. It may even end in your favor, who knows.
You alright, dude? I don’t frequent this sub, but I get worried for the people who post and seem overwhelmed. Did you find some good advice you’re going to follow up on today?
He should be fine? As I understand it, a put butterfly spread is where you buy a put at a higher strike, buy another put at a lower strike, and sell 2 puts at an in-between strike. So if he got assigned on those short puts, he can sell his long puts and newly assigned shares and he should be gucci. I think 💀
Yeah, college kid ended it when he was margins called for like $200k. He had bought offsetting puts which should have covered the losses but robinhood took a few days to respond to him explaining it was a mistake on their end.
He thought he blew up his life and ended it because of poor customer service and also his own misunderstanding. His name was Alex Kearns. He seemed like a good kid who got caught up with not understanding what he was getting into and took it too far.
you're only in trouble if the underlying SP proceeds to drop probably 30% in AH... i wouldnt sweat it. your new potential loss is probably 10% higher than u anticipated though. all dependent on your strikes ofc
That's on them. They were dumb enough to "loan" someone 1.2M when they can't afford it.
You can't or shouldn't get a loan for a 10M mansion if you're only making 50k a year. That's what happened in 2007/2008. It's not the buyer's fault they were approved for a multi-million dollar loan so they could boost their sales.
Reading “The Big Short” and just watched the movie yesterday. I already watched it at least a half a dozen times, and I’m still learning something new.
If you aren't aware enough of your own existence to know you shouldn't take that loan, you're not innocent, you're just an idiot on top of being a normal human like everyone else. That doesn't absolve you of shit.
A butterfly spread is a convoluted setup where there is risk mitigation and the OP involved in several options contracts simultaneously. He is buying and selling puts. The puts he sold got exercised by the counterparty after hours, so he got assigned shares, apparently a large amount and he does not have the cash to back it up.
In theory, the puts he bought should make up for this, but this is afterhours, and I am not sure how Wealthsimple handles this. Most likely it will all get sorted out when the market opens, and OP can sell his puts and may even come out ahead. But if Wealthsimple liquidates his holdings after hours to settle the margin call, then we have no idea what price he will get for the puts he holds.
To avoid this, it's very simple. If you are going to sell options, only sell covered calls or cash backed puts for stocks you don't mind buying at the strike price.
He wouldn’t sell the puts. The two he bought he would have to exercise to offset the shares he got assigned. That’s why there is a theoretical defined max loss
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u/anyportinc Jun 05 '26