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.
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.
For every option position there is a counterpart: if somebody is long an option, somebody else must be short the same option.
Margins are required for short option positions only. Long option positions are entered against the full payment of the premium.