How OPTIONS are settled can be an eye opener and I hope I can get some answers

Question

The only reason why I put it here is to find out whether I am a victim or just ignorant of the way brokers deal with option positions that were exercised. Whether I am a victim or just ignorant depends on the answer that I posted here.

The facts are:

I had a 2 SHORT QS Option at 75 which was exercised against me on the 23 Dec 00.45 AM and I later exercised my 2 LONG QS Option at 70 on 23 Dec 9.31 AM. The broker charged me Borrow Fee for 24-27 Dec for $1102, which means instead of getting $1000 profit I turn this into a loss of $102 plus comm.

My question:

1. Since both long and short options were exercised on the same day one at 45 mins on 23 Dec and the later at 9.31 am on the same day, how can there be a SHORT POSITION in the stocks since both are net-off in my account ?

The answer I got from my broker and this is the point that I want to clarify.

2. The response I got from IB was that the initial exercise at 45 mins on 23 Dec was actually on 22 Dec (not 23 as I alleged). They refused to show me how they got 22 Dec.

This is my explanation to my Broker in reply.

3. Even if the short call and long call was exercised on different dates 22 and 23 Dec respectively, IB can only charge me for the SHORT position for one day and not from 24-27 Dec by ignoring my long call position was not there.

Further Facts:

4. My Broker ignored my answer and insisted the dates are correct and therefore I was charged to borrow shares that was need to satisfy the short position on exercised. So I am lost as I do not know whether the broker is correct and they can do this by ignoring my long call position after exercised or there is something they had not tell me. That is the reason I came to this site soliciting answers from those who know more than I do or had experienced the same.

5. I hope I have explained this clearly now and why would I want to give an opinion when I am looking for an answer ?

Answer 1

Long and short options do not "net off" one another.

Three days to settle sounds normal. You mistakenly assumed that exercising a long option would immediately put QS shares in your account. In reality, the broker had to borrow QS shares on your behalf for three days, until the long option trade settled and QS shares were available in your account to end the loan.

Answer 2

I'm going to go out on a limb to explain why being charged $1,102 in borrow fees might be legitimate. However, my answer will not be precise because I do not capture borrow rates on a regular basis and also because the assignment date is in question (22nd or 23rd?).

If you went short on 12/24, that was a Thursday. That means that settlement would be Monday 12/28 and you would be short for 4 days (yep, you get charged for weekends as well). Since you were charged $1,102 that implies a borrow rate of 670%.

QS was non borrowable at my broker on 12/08, 12/14 and 12/21. The next capture date that I have is 1/05 and the borrow rate was 503%. So it's not beyond the realm of possibility that the borrow rate was 670% when you were short 200 shares for 4 days.