Does this Reply from Tiger Brokers make sense?

[WarMage87]

So I sold 5 calls for GME with 40 strike expiration 19 July 2024, at price of 0.90 per contract awhile back, with 500 cash bought shares (zero margin were used to buy these shares, every single one was bought with cash) in my account to cover the calls I sold.

With an icon indication in the app that these positions are indeed in combination with the option contracts I sold and is covered.

However, yesterday night, Tiger raised margin requirements for GME, which should not affect my position at all since it is fully covered by the 500 shares that I can deliver at any moment in my account.

Yet I was liquidated at 15 minutes after this margin requirement increase was put into place.
Forcing me to buy 5 call contracts at 24-26 per contract, sending my account balance into negative USD10k++ and to mitigate this risk I sold off all 500 shares @ 53

I have attached screenshots of my emails with support and liquidation, but I cannot see the logic in their response.

Why should margin apply to my position where I sold a call but have the shares the deliver?
Isn't selling a call option simply a contract to deliver shares at an agreed upon price, what's more, my position was fully covered with zero leverage being used to cover.

Moreover, they mentioned 'as a brokerage platform and from the perspective of risk control, Covered options are not risk-free although you hold the underlying stock, as there is no guarantee that the option/stock position can be closed smoothly when the stock price fluctuates significantly. '

This does not make sense to me at all.
If price drops significantly or to zero, the contact expires worthless and I take the loss on my shares but profit the option premium, no problem it's the risk I took on selling the covered call.

If the price skyrockets to astronomically high levels, since my position is fully covered, it doesn't affect anyone but me in terms of loss in potential gains?

The shares are all still there in my account to meet the obligation of the call, so I do not understand where the risk is on Tiger's end?

I had 500 shares that were just sitting there ready to deliver if required, it's not like I sold any single one of them, if I sold even 1 of the 500 then yes I would understand why I got liquidated, but no I kept all 500 shares in my account without selling a single one.

The only explanation I can see, on why there would be any risk on Tiger's end is if they are lending out my shares without my consent, as I have never given them consent to, or they don't actually have my shares at all.

Does anyone have any perspectives on this?

All I know is, I'm definitely moving all my money out of Tiger after this.

 

[andyhtc]

It is called Tiger for a reason.

I don't trust these cute name platforms.

 

[Epee]

Your account has a liquidity issue. They don’t care if your options are covered or not. They only care your naked short calls are now deep in the red. I believe if you get to see your liquidity status during that time, it’ll be very low or even less than $0.

 

[Shiny Things]

So I sold 5 calls for GME with 40 strike expiration 19 July 2024, at price of 0.90 per contract awhile back, with 500 cash bought shares (zero margin were used to buy these shares, every single one was bought with cash) in my account to cover the calls I sold.

With an icon indication in the app that these positions are indeed in combination with the option contracts I sold and is covered.

I'm not 100% sure about this, but I'm going to bet that Tiger Brokers doesn't do "portfolio margining" - they're margining the stock leg and the options leg individually.

The sensible thing for a broker to do would be to net the stock and options positions together, and measure your margin based on "what's the worst-case outcome for the combined position?". That's called portfolio margining - you can opt in to this at IBKR - and I think that's what you were expecting would happen.

The easier thing for brokers to do is to calculate the margin requirements for each position individually, and then sum them up to calculate the portfolio's total margin, even though some of those positions may be hedged by other positions. So when your calls went deep-in-the-money, Tiger said "whoops, those calls are under-margined, we're liquidating them!" even though you had positive PnL from the stock leg of the covered call. This is occasionally (in the USA, at least) called "regulation T" margining, to distinguish it from portfolio margining.

So it's not that there's risk on Tiger's end; it's that they went for the easy, shorthand method of calculating your portfolio's margin requirement.