Planning for Incapacitation, or Worse

Discussion in 'General Discussion' started by Jim C, Aug 29, 2017.

  1. Jim C

    Jim C Member

    What are your thoughts about how to handle your open option positions in case you become incapacitated, or die while the positions are open? Nobody in my family understands option trading, and I have no knowledgeable friends or trading partners who could step in to handle the task in an emergency situation. Something to think about. Any ideas? GTC orders that are triggered at certain price points, but which you must manage to make sure they don't trigger unnecessarily?
  2. garyw

    garyw Well-Known Member

    Similar issue here. Perhaps trades such as the RTT are more "death-friendly", as most will playout without undue losses in your absence. (I would think that "white knuckle trades" would need a well-thought out plan to keep from leaving family in financial ruin.) Standing GTC orders should be able to take the edge off (I need to address this more as well).
  3. Paul Demers

    Paul Demers Well-Known Member

    This topic is very important. We always talk about risk in the trade but I consider this part of risk management. I have several trading buddies that we have shared information to be able to close out the positions if my wife or my son call. Each one of my family has an envelope with the login and password information for each account as well as the names and phone numbers of the people that would help. I have taken the envelope for my wife and taped it to the bottom of my keyboard so it will be easy to find.If something happens she will open the envelope and call one of the people and give them the login and password for the accounts. The big issue is finding a trading buddy that understands your trades that do.
    David C., Shin, Mark17 and 2 others like this.
  4. Edward H

    Edward H Well-Known Member

    I currently have a plan in place similar to Paul's. However, there is a good chance I will outlive my trading partner. Makes me realize I need more younger trading acquaintances!
    Mark17 likes this.
  5. Luke

    Luke Well-Known Member

    Interesting topic! I am trying to teach my son and keep him in the loop on what I do, but at 15 years old, not sure he would fully understand everything. I think the worst case scenario I'd have to use it showing him how to close everything up. Even if he has to do each leg on it's own and risk massive slippage, I guess that's one way of handling it...

    If you haven't already, I highly suggest sitting down with an estate planning attorney and setting up the appropriate trusts to manage your assets. This will require that you think of all of these scenarios and my push you to find someone you trust to handle them. At the very least, this discussion will motivate me to make sure my trustees have clear instructions on how to handle my trading account in a worst case scenario.
    Shin, KS and Paul Demers like this.
  6. Paul Demers

    Paul Demers Well-Known Member

    One thing I forgot to mention. If you are trading multiple strategies in one underlying it would make it easier if you share a dropbox folder where you save all your sim trades so the person closing the positions does not have to try and figure out what trades you have on.
  7. Jack

    Jack Well-Known Member

    The only accounts I have are JTWROS (Joint Tenants with Rights of Survivorship) with my wife at TD. All my wife needs to do is call TD and ask the trading desk to close ALL open positions and convert everything to cash. She can start withdrawing cash when required. Very simple. No 3rd party involvement., no probate, etc.
    Trader G likes this.
  8. Paul Demers

    Paul Demers Well-Known Member

    I have the same account as you do Jack so no concerns there. I do have a concern about letting the trade desk liquidate my positions. If you have one or two definable trades that might be a reasonable choice but if there are multiple trades on in the same underlying do you feel that the trading desk is going to spend the time to organize the trades and work the orders to close them for the best prices available? What I worry about is that they will hit the bid and ask to close out the trades and if the trades are in SPX it could become costly. Plus consider if you are incapacitated due to surgery or a car accident and its for a short period of time (say two weeks), what then?
    Just thinking about the different scenarios.
  9. stevegee58

    stevegee58 Well-Known Member

    We all know how convoluted a RTT can get after RHs and baby butter layers get added. The safest way is to take it off in a series of flies, or even better a series of verticals.
    Controlling margin and risk as it's taken off is very important. You could accidentally end up with unintended insane margin exposure that could kill your account on an adverse market move.
    I'd never trust a desk trader to do it for me (or my wife).
  10. Edward H

    Edward H Well-Known Member

    I totally agree I've had problems with the desk trying to take off an unbalance fly position for me before (and that was with my supervision).
  11. Harry

    Harry Well-Known Member

    I have been thinking about it but did not finalize anything. Of course someone needs to have access to your account but assuming they do, how do they go about closing trades is the issue. In my mind, this is very simple, but it may not work in real life. What do you think?
    Basically all the person will need to do is to close the short strikes first and long strikes next. So the person a) needs to know the difference between short and long strikes, and b) be able to systematically close shorts first longs next. In my mind: since short strikes are what consume the margin, with this approach you never run into a scenario where you are short of margin, but I may be wrong as the individual prices of a spread may have very high values (need to validate with real data, right now just stream of consciousness). Then the next question becomes c) become familiar with buying powers, and d) for multiple contracts of a position, close them one by one (close 1 short, close 1 long, close 1 short, close 1 long) while keeping an eye on buying power.

    Can we formulate something on similar lines? I am sure a 1-pager (1-para) dummies for incapacitation will be useful to all of us. For my purposes, I am assuming the person has account access and knows how to close a single contract, but even that can be written down if required.
    Mark17 likes this.
  12. Trader G

    Trader G Well-Known Member

    Thank you for this info Jack. I recently contacted TOS (via chat unfortunately) due to a neighbor getting in an accident and they failed to even mention this option. It was actually on my list of things I have recently realized are important but haven't addressed. I got sidetracked with the rabbit hole of what happens if the market closes for a period of time and reopens after option positions technically expired. I still don't have clear answers on that one.
  13. Trader G

    Trader G Well-Known Member

    Unfortunately, my 14 year old would probably treat it like a video game and see how high he could run it up before he closed things out.
  14. Jack

    Jack Well-Known Member

    There is no "one size fits all" in trading. Everybody's situation is different. Do what you are comfortable with. I do not have problems with TD trading desk liquidating my accounts under emergency conditions. I have been using TOS/TD for a very long time and have used them to close positions before. They did it the way I would if not better, by pairing similar options and ensuring no naked positions left open at anytime. If I am available I will do it my self! The TOS guys understand options trading. I cannot say that for other brokers.
  15. Jim C

    Jim C Member

    All are excellent considerations. Pursuing the idea of a GTC order to close a position, here's a proposed TOS order to close an SPX 20 Oct RTT with a lower b/e of 2340. The working order would be submitted when SPX is at/below 2350, at a limit price of mark - 0.30, and would be cancelled, if not filled, on Oct 19 at 13:15 PT. I will have to track the SPX price and modify/cancel the order, as appropriate, as the trade progresses. If I can't/don't cancel the order, it is there waiting as a safety net if the SPX trades below 2350 before expiration. Thoughts or suggestions?

    SPX GTC Close Order.JPG

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