Chapter 04 · Section 4.1

Liquidation

How does the broker liquidate the positions of a customer who fails to meet his margin call?

a) He informs the clearing house that he wants the customer's positions cancelled.
No. An option position cannot just be cancelled. Somebody else is counterpar to that position.
b) He has to buy the options at the best possible price on the market, just as if the customer had given the order to do so.
c) He has to sell the options at the best possible price on the market, just as if the customer had given the order to do so.
d) He has to buy the options at the best possible price on the market, so as to liquidate the short positions. If necessary, he can also sell the long positions.