Box Spreads as Loans - Interactive Brokers IBKR - 2021

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Topic Author
kellykline
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Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by kellykline »

Has anyone successfully opened a box spread as a low interest loan?

There are articles out there about how this would "theoretically" work, but in practice, my box spread orders expiring in 2023 NEVER EVER gets filled. Who would buy those boxes anyway?

Can't do it in IBKR. Anyone who has done it, please share how you did it???
dafioram
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by dafioram »

Why are you trying to do this with such a far away expiration? The spread will be worse the farther the expiration and wider the strikes.
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kellykline
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by kellykline »

It’s supposedly a strategy for cheap loans? Someone posted on here about doing that, getting sub 1% loans.
corp_sharecropper
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by corp_sharecropper »

dafioram wrote: Tue Mar 30, 2021 5:11 pm Why are you trying to do this with such a far away expiration? The spread will be worse the farther the expiration and wider the strikes.
I think this is the problem.

It's too far out where the spreads/liquidity make it difficult. One thing I've noticed is that there seems to be a good bit more volume on these far out LEAPS on the first day that they become available, so it might be best to attempt this on that specific day. I once did a good bit of searching for when those days are, which was not easy info to find, and unfortunately I don't have it anymore.
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kellykline
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by kellykline »

The key to the strategy is to pick the one that expires the longest on European style options. Otherwise you will not be able to get the rates below 1%. Which is the whole point of the strategy. Hope someone who’s done it before I can shed light on how to do it properly
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firebirdparts
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by firebirdparts »

Well, you tell us, where are you in the bid/ask spread? If you make a better deal for the other guy, they’ll get filled, right? Is that not the problem?
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kellykline
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by kellykline »

Here’s my order :
SELL 1 SPX CALL 3950
BUY 1 SPX CALL 3975
SELL 1 SPX PUT 3975
BUY 1 SPX PUT 3950

For the options expiring in 2023.
Selling the box for around $24.65 for a sub 1% loan.

Never gets filled.
langlands
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by langlands »

kellykline wrote: Tue Mar 30, 2021 9:51 pm Here’s my order :
SELL 1 SPX CALL 3950
BUY 1 SPX CALL 3975
SELL 1 SPX PUT 3975
BUY 1 SPX PUT 3950

For the options expiring in 2023.
Selling the box for around $24.65 for a sub 1% loan.

Never gets filled.
Why do you think it needs to be filled at $24.65? Just keep decreasing the price slowly. Eventually it will get filled.
calculon11
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by calculon11 »

I haven't done it, but I have been researching it. This thread says you need to direct route orders to an exchange, whatever that means...
https://www.reddit.com/r/investing/comm ... cheap_085/
Semantics
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Semantics »

Biggest problem is your strikes, you should use rounder numbers. The open interest on Dec 23 3975 options is essentially zero, compared to around 1000 at 3900 and 4000. As others have pointed out, you will get easier fills at nearer term dates as well, where liquidity is a bit higher, especially if a 10k loan is too much and you need a narrower spread (but if you pay commissions you do want a wide spread if possible). Don't expect an instant fill either, you might need to leave the order open for a while unless you're willing to accept a slightly worse rate. Steve Reading said he would try over a few days sometimes. Personally I'm less patient and just lower my ask every 10-20 minutes and try to get it filled the same day. I've done this on both IBKR and Schwab, always using SPX as well.
langlands
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by langlands »

Semantics wrote: Tue Mar 30, 2021 10:08 pm ...
It's only possible to sell box spreads in a taxable account right? As in it's not possible in IRAs.
Semantics
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Semantics »

langlands wrote: Tue Mar 30, 2021 10:13 pm
Semantics wrote: Tue Mar 30, 2021 10:08 pm ...
It's only possible to sell box spreads in a taxable account right? As in it's not possible in IRAs.
I haven't tried, but I believe you can trade credit spreads in IRAs and this is just two credit spreads, so it might be possible.
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kellykline
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by kellykline »

Semantics wrote: Tue Mar 30, 2021 10:08 pm Biggest problem is your strikes, you should use rounder numbers. The open interest on Dec 23 3975 options is essentially zero, compared to around 1000 at 3900 and 4000. As others have pointed out, you will get easier fills at nearer term dates as well, where liquidity is a bit higher, especially if a 10k loan is too much and you need a narrower spread (but if you pay commissions you do want a wide spread if possible). Don't expect an instant fill either, you might need to leave the order open for a while unless you're willing to accept a slightly worse rate. Steve Reading said he would try over a few days sometimes. Personally I'm less patient and just lower my ask every 10-20 minutes and try to get it filled the same day. I've done this on both IBKR and Schwab, always using SPX as well.
Someone posted about auto liquidation at IBKR because their algorithm is flawed. What boxes do you usually open? 3 years out? They’re pretty illiquid and IBKR may just screw us.
langlands
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by langlands »

Semantics wrote: Tue Mar 30, 2021 10:31 pm
langlands wrote: Tue Mar 30, 2021 10:13 pm
Semantics wrote: Tue Mar 30, 2021 10:08 pm ...
It's only possible to sell box spreads in a taxable account right? As in it's not possible in IRAs.
I haven't tried, but I believe you can trade credit spreads in IRAs and this is just two credit spreads, so it might be possible.
Interesting...I assume the credit spreads you sell have to be cash covered since you're not supposed to be able to use margin. It's not clear to me how strictly they enforce this however (some brokerage options agreements I've read seem to say that it's your responsibility to have enough cash to cover your obligations, perhaps implying they won't ensure this for you). I mean if you're allowed to sell box spreads in an IRA, this is essentially a loophole to convert a cash account into a margin account. Surprisingly Google search turns up nothing on this.
langlands
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by langlands »

kellykline wrote: Tue Mar 30, 2021 10:37 pm
Semantics wrote: Tue Mar 30, 2021 10:08 pm Biggest problem is your strikes, you should use rounder numbers. The open interest on Dec 23 3975 options is essentially zero, compared to around 1000 at 3900 and 4000. As others have pointed out, you will get easier fills at nearer term dates as well, where liquidity is a bit higher, especially if a 10k loan is too much and you need a narrower spread (but if you pay commissions you do want a wide spread if possible). Don't expect an instant fill either, you might need to leave the order open for a while unless you're willing to accept a slightly worse rate. Steve Reading said he would try over a few days sometimes. Personally I'm less patient and just lower my ask every 10-20 minutes and try to get it filled the same day. I've done this on both IBKR and Schwab, always using SPX as well.
Someone posted about auto liquidation at IBKR because their algorithm is flawed. What boxes do you usually open? 3 years out? They’re pretty illiquid and IBKR may just screw us.
Did you read about their algorithm on Elite Trader? In any case, check out this thread if you haven't already.

https://www.elitetrader.com/et/threads/ ... es.341064/
Topic Author
kellykline
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by kellykline »

yeah, that's the thread I read about the algorithm going haywire and auto-liquidating everything.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

Semantics wrote: Tue Mar 30, 2021 10:08 pm Biggest problem is your strikes, you should use rounder numbers. The open interest on Dec 23 3975 options is essentially zero, compared to around 1000 at 3900 and 4000.
From what I read and in my understanding, this is not the case. Open interest or trading volume are not relevant for complex combination orders. Your combination order is posted to a "complex order book", and evaluated and possibly filled as a whole by algos (market makers) depending on their calculated fair value. Caveat: I'm new to this. Just repeating what I read.
Semantics wrote: Tue Mar 30, 2021 10:08 pm Steve Reading said he would try over a few days sometimes. Personally I'm less patient and just lower my ask every 10-20 minutes and try to get it filled the same day. I've done this on both IBKR and Schwab, always using SPX as well.
I too am less patient. And I'm wondering if the fill after days of wait would be due to market moving against you at some point if you wait long enough, or somebody actually "discovering" your order who didn't see it or want it before. From what I read, 4-legged options orders are usually scanned by algos or market makers, and will be filled if your limit is a certain distance to their advantage from their internal "fair price". In summary, if my understanding is correct, I would question the utility of waiting for days. I'm not a professional trader, and beginner on the subject.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

langlands wrote: Tue Mar 30, 2021 11:19 pm
Semantics wrote: Tue Mar 30, 2021 10:31 pm
langlands wrote: Tue Mar 30, 2021 10:13 pm
Semantics wrote: Tue Mar 30, 2021 10:08 pm ...
It's only possible to sell box spreads in a taxable account right? As in it's not possible in IRAs.
I haven't tried, but I believe you can trade credit spreads in IRAs and this is just two credit spreads, so it might be possible.
Interesting...I assume the credit spreads you sell have to be cash covered since you're not supposed to be able to use margin. It's not clear to me how strictly they enforce this however (some brokerage options agreements I've read seem to say that it's your responsibility to have enough cash to cover your obligations, perhaps implying they won't ensure this for you). I mean if you're allowed to sell box spreads in an IRA, this is essentially a loophole to convert a cash account into a margin account. Surprisingly Google search turns up nothing on this.
I put in a box order in my IRA until the "order preview", which showed the margin requirement almost identical to the cash amount the the box would generate. In summary, my understanding is that you can do it in an IRA, but it would be a terrible idea since you would effectively borrow at a positive interest rate to have cash sitting at 0% in your account.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

langlands wrote: Tue Mar 30, 2021 11:22 pm
kellykline wrote: Tue Mar 30, 2021 10:37 pm
Semantics wrote: Tue Mar 30, 2021 10:08 pm Biggest problem is your strikes, you should use rounder numbers. The open interest on Dec 23 3975 options is essentially zero, compared to around 1000 at 3900 and 4000. As others have pointed out, you will get easier fills at nearer term dates as well, where liquidity is a bit higher, especially if a 10k loan is too much and you need a narrower spread (but if you pay commissions you do want a wide spread if possible). Don't expect an instant fill either, you might need to leave the order open for a while unless you're willing to accept a slightly worse rate. Steve Reading said he would try over a few days sometimes. Personally I'm less patient and just lower my ask every 10-20 minutes and try to get it filled the same day. I've done this on both IBKR and Schwab, always using SPX as well.
Someone posted about auto liquidation at IBKR because their algorithm is flawed. What boxes do you usually open? 3 years out? They’re pretty illiquid and IBKR may just screw us.
Did you read about their algorithm on Elite Trader? In any case, check out this thread if you haven't already.

https://www.elitetrader.com/et/threads/ ... es.341064/
I haven't read that thread in its entirety, but often times IB is not as bad as some make it seem. (I am not affiliated with IB.) First off, the indicated valuation of my boxes in my IB account seems to be based on an internal fair value, not on current bid/ask. Secondly, if you don't borrow a huge amount in relation to your account value, you would probably have plenty of margin "cushion" even if there was a mispricing at some point. Thirdly, to reduce risk, I think selling few boxes with large vertical spreads i.e. large difference between the strike prices greatly reduces the valuation of the individual legs, possibly reducing risk of mispricing, in comparison to selling many boxes with a narrow spread between strike prices. Caveat: All of this is currently just speculation and observations on my side. I don't know if individual legs or the combination position in its entirety are valued by IB for purpose of margin, nor do I know their valuation and margin methodology for options, nor do I know if there is any real risk of liquidation of option boxes due to mispricings or other reasons.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

kellykline wrote: Tue Mar 30, 2021 9:51 pm Here’s my order :
SELL 1 SPX CALL 3950
BUY 1 SPX CALL 3975
SELL 1 SPX PUT 3975
BUY 1 SPX PUT 3950

For the options expiring in 2023.
Selling the box for around $24.65 for a sub 1% loan.

Never gets filled.
I was filled at 0.45-0.5% above risk-free rates for similar boxes. Others reportedly got filled at 3.x% above risk-free rates a few months ago.
3-year government bonds currently yield 0.335%.
Your limit implies 0.596% interest rate. You probably have to lower your limit.
langlands
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by langlands »

comeinvest wrote: Wed Mar 31, 2021 4:13 am
kellykline wrote: Tue Mar 30, 2021 9:51 pm Here’s my order :
SELL 1 SPX CALL 3950
BUY 1 SPX CALL 3975
SELL 1 SPX PUT 3975
BUY 1 SPX PUT 3950

For the options expiring in 2023.
Selling the box for around $24.65 for a sub 1% loan.

Never gets filled.
I was filled at 0.45-0.5% above risk-free rates for similar boxes. Others reportedly got filled at 3.x% above risk-free rates a few months ago.
3-year government bonds currently yield 0.335%.
Your limit implies 0.596% interest rate. You probably have to lower your limit.
Thanks for your informative posts. Is that 3.x% a typo? Did you mean 0.3x%?
Semantics
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Semantics »

comeinvest wrote: Wed Mar 31, 2021 3:43 am
Semantics wrote: Tue Mar 30, 2021 10:08 pm Biggest problem is your strikes, you should use rounder numbers. The open interest on Dec 23 3975 options is essentially zero, compared to around 1000 at 3900 and 4000.
From what I read and in my understanding, this is not the case. Open interest or trading volume are not relevant for complex combination orders. Your combination order is posted to a "complex order book", and evaluated and possibly filled as a whole by algos (market makers) depending on their calculated fair value. Caveat: I'm new to this. Just repeating what I read.
That makes sense, so I'm probably wrong on that point, but anecdotally it did seem easier to get fills with the higher OI options. (Maybe the algos themselves prefer more liquid options? Or, more likely, my anecdote was just coincidence.)

I do wonder though if using higher OI options would help with mispricing auto-liquidation issue mentioned on IBKR.
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kellykline
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by kellykline »

why would market makers "lend" money at 0.8% interest? wouldn't they want to get the highest possible interest rate? like, loan shark level interest rates. I mean, TD Ameritrade charges 8% margin interest rates and they say they're being generous. Credit cards charge 21% interest.
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kellykline
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by kellykline »

comeinvest wrote: Wed Mar 31, 2021 4:13 am
kellykline wrote: Tue Mar 30, 2021 9:51 pm Here’s my order :
SELL 1 SPX CALL 3950
BUY 1 SPX CALL 3975
SELL 1 SPX PUT 3975
BUY 1 SPX PUT 3950

For the options expiring in 2023.
Selling the box for around $24.65 for a sub 1% loan.

Never gets filled.
I was filled at 0.45-0.5% above risk-free rates for similar boxes. Others reportedly got filled at 3.x% above risk-free rates a few months ago.
3-year government bonds currently yield 0.335%.
Your limit implies 0.596% interest rate. You probably have to lower your limit.
Thanks, so if I understand you correctly, the box should be sold at $24.50. That works out to be a loan at 0.955% interest (including commission)?

I walked my box down on CBOE to $24.40 and still no takers.
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firebirdparts
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by firebirdparts »

Well...... You may have to be a little more friendly.

As to the question of IRA's, you can hold a spread in an IRA, at least I can, so I guess it's possible to do it two spreads.
A fool and your money are soon partners
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kellykline
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by kellykline »

lol, cool avatar! :D sell a box for 1%, buy doge to $1
Semantics
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Semantics »

kellykline wrote: Wed Mar 31, 2021 3:28 pm why would market makers "lend" money at 0.8% interest? wouldn't they want to get the highest possible interest rate? like, loan shark level interest rates. I mean, TD Ameritrade charges 8% margin interest rates and they say they're being generous. Credit cards charge 21% interest.
If you are borrowing a significant amount on margin you could likely call them up and negotiate a much lower rate than 8%. If you want a 1M margin loan for example I imagine you could probably get something like LIBOR + 2% with most major brokers. They know you can just take your whole account elsewhere if they don't offer something competitive.

I've always assumed the reason the normal public rates are like 8% is because they make a lot of money off customers who run negative balances unintentionally, or in small amounts such that they don't pay attention to the rate.

As for why they'd go down to 0.8%, same reason someone would buy a 5-year treasury bond at 0.9%, it's nearly risk-free to the MM, to them it's effectively an institutional loan to your broker.
langlands
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by langlands »

Semantics wrote: Wed Mar 31, 2021 6:26 pm
kellykline wrote: Wed Mar 31, 2021 3:28 pm why would market makers "lend" money at 0.8% interest? wouldn't they want to get the highest possible interest rate? like, loan shark level interest rates. I mean, TD Ameritrade charges 8% margin interest rates and they say they're being generous. Credit cards charge 21% interest.
I've always assumed the reason the normal public rates are like 8% is because they make a lot of money off customers who run negative balances unintentionally, or in small amounts such that they don't pay attention to the rate.
Guilty as charged...I should really do something about this at some point, but just too lazy. I tend to rack up a margin interest bill of a few hundred ever year and am annoyed whenever I see it on the 1099.
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kellykline
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by kellykline »

Semantics wrote: Wed Mar 31, 2021 6:26 pm
kellykline wrote: Wed Mar 31, 2021 3:28 pm why would market makers "lend" money at 0.8% interest? wouldn't they want to get the highest possible interest rate? like, loan shark level interest rates. I mean, TD Ameritrade charges 8% margin interest rates and they say they're being generous. Credit cards charge 21% interest.
If you are borrowing a significant amount on margin you could likely call them up and negotiate a much lower rate than 8%. If you want a 1M margin loan for example I imagine you could probably get something like LIBOR + 2% with most major brokers. They know you can just take your whole account elsewhere if they don't offer something competitive.

I've always assumed the reason the normal public rates are like 8% is because they make a lot of money off customers who run negative balances unintentionally, or in small amounts such that they don't pay attention to the rate.

As for why they'd go down to 0.8%, same reason someone would buy a 5-year treasury bond at 0.9%, it's nearly risk-free to the MM, to them it's effectively an institutional loan to your broker.
that makes sense. I've just opened a box order on IBKR, haven't been filled yet if ever. let me know your thoughts:

SPX European options
SELL call 3925
BUY call 3975
BUY put 3925
SELL put 3975
Ex. date 12/15/2023
Unit price (credit) 49

I still don't get it though, the IBKR margin page just adds $5,000 to my minimum maintenance, and about $4,900 to the Equity w/Loan.
So this is NOT a loan?? What's the use of this box if it just raises the maintenance by the same amount as it adds to Equity?

Someone please explain!
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kellykline
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by kellykline »

comeinvest wrote: Wed Mar 31, 2021 4:13 am
kellykline wrote: Tue Mar 30, 2021 9:51 pm Here’s my order :
SELL 1 SPX CALL 3950
BUY 1 SPX CALL 3975
SELL 1 SPX PUT 3975
BUY 1 SPX PUT 3950

For the options expiring in 2023.
Selling the box for around $24.65 for a sub 1% loan.

Never gets filled.
I was filled at 0.45-0.5% above risk-free rates for similar boxes. Others reportedly got filled at 3.x% above risk-free rates a few months ago.
3-year government bonds currently yield 0.335%.
Your limit implies 0.596% interest rate. You probably have to lower your limit.
So my box was filled at $24.50. But it doesn't do anything to my margin??? It's not like I have additional buying power. Margins are the same minus the amount paid for the loan. What is this scam, totally bs!!!
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firebirdparts
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by firebirdparts »

After I posted on the IRA question, I thought about that. In an IRA, you can't ride to the rescue with more money, so they would have set the margin requirement in the IRA that way for sure.

In the case of people actually using box spreads for loans, they'd have to have that invested in something that meets the margin requirement, I guess. I don't think it actually needs to be in cash. I'm not sure how far you can go, but it's gotta be very specific to the level of featurism of your account and I am sure different brokers have different risk management policies.
A fool and your money are soon partners
Tingting1013
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Tingting1013 »

kellykline wrote: Thu Apr 01, 2021 2:23 pm
comeinvest wrote: Wed Mar 31, 2021 4:13 am
kellykline wrote: Tue Mar 30, 2021 9:51 pm Here’s my order :
SELL 1 SPX CALL 3950
BUY 1 SPX CALL 3975
SELL 1 SPX PUT 3975
BUY 1 SPX PUT 3950

For the options expiring in 2023.
Selling the box for around $24.65 for a sub 1% loan.

Never gets filled.
I was filled at 0.45-0.5% above risk-free rates for similar boxes. Others reportedly got filled at 3.x% above risk-free rates a few months ago.
3-year government bonds currently yield 0.335%.
Your limit implies 0.596% interest rate. You probably have to lower your limit.
So my box was filled at $24.50. But it doesn't do anything to my margin??? It's not like I have additional buying power. Margins are the same minus the amount paid for the loan. What is this scam, totally bs!!!
Lol.

Seems like a lot of work for not that much marginal benefit.

IB offers Straight margin at 1%
nalor511
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by nalor511 »

Tingting1013 wrote: Thu Apr 01, 2021 2:58 pm
kellykline wrote: Thu Apr 01, 2021 2:23 pm
comeinvest wrote: Wed Mar 31, 2021 4:13 am
kellykline wrote: Tue Mar 30, 2021 9:51 pm Here’s my order :
SELL 1 SPX CALL 3950
BUY 1 SPX CALL 3975
SELL 1 SPX PUT 3975
BUY 1 SPX PUT 3950

For the options expiring in 2023.
Selling the box for around $24.65 for a sub 1% loan.

Never gets filled.
I was filled at 0.45-0.5% above risk-free rates for similar boxes. Others reportedly got filled at 3.x% above risk-free rates a few months ago.
3-year government bonds currently yield 0.335%.
Your limit implies 0.596% interest rate. You probably have to lower your limit.
So my box was filled at $24.50. But it doesn't do anything to my margin??? It's not like I have additional buying power. Margins are the same minus the amount paid for the loan. What is this scam, totally bs!!!
Lol.

Seems like a lot of work for not that much marginal benefit.

IB offers Straight margin at 1%
IB is pretty aggressive about selling your investments if they drop, and not just "calling" like other brokers, is what I've read, which has made me not take margin with them despite the otherwise attractive rate
UberGrub
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by UberGrub »

kellykline wrote: Thu Apr 01, 2021 1:10 am I still don't get it though, the IBKR margin page just adds $5,000 to my minimum maintenance, and about $4,900 to the Equity w/Loan.
So this is NOT a loan?? What's the use of this box if it just raises the maintenance by the same amount as it adds to Equity?

Someone please explain!
Isn't that how every loan ever works? The amount of liabilities (MM) increases by the same amount as your assets (equity w/Loan). If you use portfolio margin, then both MM and EWL simply stay the same before and after.

I mean, what did you want, Equity w loan to go up but MM stay the same? Did you just think this was free money? It's a loan, not free capital.
kellykline wrote: Thu Apr 01, 2021 2:23 pm So my box was filled at $24.50. But it doesn't do anything to my margin??? It's not like I have additional buying power. Margins are the same minus the amount paid for the loan. What is this scam, totally bs!!!
Whatever buying power regular margin gives you, is the same buying power (well, a little less if using Reg T) when selling a box spread. So a box spread is a way to borrow as much money as margin already lets you (again, a little less) but paying a much lower rate. It is not a way to somehow borrow more than margin could.
langlands
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by langlands »

Tingting1013 wrote: Thu Apr 01, 2021 2:58 pm
kellykline wrote: Thu Apr 01, 2021 2:23 pm
comeinvest wrote: Wed Mar 31, 2021 4:13 am
kellykline wrote: Tue Mar 30, 2021 9:51 pm Here’s my order :
SELL 1 SPX CALL 3950
BUY 1 SPX CALL 3975
SELL 1 SPX PUT 3975
BUY 1 SPX PUT 3950

For the options expiring in 2023.
Selling the box for around $24.65 for a sub 1% loan.

Never gets filled.
I was filled at 0.45-0.5% above risk-free rates for similar boxes. Others reportedly got filled at 3.x% above risk-free rates a few months ago.
3-year government bonds currently yield 0.335%.
Your limit implies 0.596% interest rate. You probably have to lower your limit.
So my box was filled at $24.50. But it doesn't do anything to my margin??? It's not like I have additional buying power. Margins are the same minus the amount paid for the loan. What is this scam, totally bs!!!
Lol.

Seems like a lot of work for not that much marginal benefit.

IB offers Straight margin at 1%
Well the benefit seems to be about 0.3% which I think is non-negligible. Assuming there are no down sides to a box spread vs. IBKR margin, it's probably worth spending a couple days figuring out how it works. It seems like something you need to rollover at most once a year.
UberGrub
Posts: 160
Joined: Wed Aug 21, 2019 3:47 pm

Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by UberGrub »

langlands wrote: Thu Apr 01, 2021 4:15 pm
Tingting1013 wrote: Thu Apr 01, 2021 2:58 pm
kellykline wrote: Thu Apr 01, 2021 2:23 pm
comeinvest wrote: Wed Mar 31, 2021 4:13 am
kellykline wrote: Tue Mar 30, 2021 9:51 pm Here’s my order :
SELL 1 SPX CALL 3950
BUY 1 SPX CALL 3975
SELL 1 SPX PUT 3975
BUY 1 SPX PUT 3950

For the options expiring in 2023.
Selling the box for around $24.65 for a sub 1% loan.

Never gets filled.
I was filled at 0.45-0.5% above risk-free rates for similar boxes. Others reportedly got filled at 3.x% above risk-free rates a few months ago.
3-year government bonds currently yield 0.335%.
Your limit implies 0.596% interest rate. You probably have to lower your limit.
So my box was filled at $24.50. But it doesn't do anything to my margin??? It's not like I have additional buying power. Margins are the same minus the amount paid for the loan. What is this scam, totally bs!!!
Lol.

Seems like a lot of work for not that much marginal benefit.

IB offers Straight margin at 1%
Well the benefit seems to be about 0.3% which I think is non-negligible. Assuming there are no down sides to a box spread vs. IBKR margin, it's probably worth spending a couple days figuring out how it works. It seems like something you need to rollover at most once a year.
How do you figure 0.3%? The IBKR margin rate is 1.56% for anything under $100K. And a box spread is about 0.5% in my (limited) experience, so we're talking about a benefit >1%. And the box spread is fully tax-deductible without a need to itemize on top of it.
Tingting1013
Posts: 1594
Joined: Mon Aug 24, 2020 5:44 pm

Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Tingting1013 »

UberGrub wrote: Thu Apr 01, 2021 4:23 pm
langlands wrote: Thu Apr 01, 2021 4:15 pm
Tingting1013 wrote: Thu Apr 01, 2021 2:58 pm
kellykline wrote: Thu Apr 01, 2021 2:23 pm
comeinvest wrote: Wed Mar 31, 2021 4:13 am

I was filled at 0.45-0.5% above risk-free rates for similar boxes. Others reportedly got filled at 3.x% above risk-free rates a few months ago.
3-year government bonds currently yield 0.335%.
Your limit implies 0.596% interest rate. You probably have to lower your limit.
So my box was filled at $24.50. But it doesn't do anything to my margin??? It's not like I have additional buying power. Margins are the same minus the amount paid for the loan. What is this scam, totally bs!!!
Lol.

Seems like a lot of work for not that much marginal benefit.

IB offers Straight margin at 1%
Well the benefit seems to be about 0.3% which I think is non-negligible. Assuming there are no down sides to a box spread vs. IBKR margin, it's probably worth spending a couple days figuring out how it works. It seems like something you need to rollover at most once a year.
How do you figure 0.3%? The IBKR margin rate is 1.56% for anything under $100K. And a box spread is about 0.5% in my (limited) experience, so we're talking about a benefit >1%. And the box spread is fully tax-deductible without a need to itemize on top of it.
1.06% if you sign up for an account here (and you should)

https://www.interactivebrokers.com/en/? ... nr=stkbrks
Topic Author
kellykline
Posts: 84
Joined: Sun Apr 17, 2016 9:12 am

Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by kellykline »

UberGrub wrote: Thu Apr 01, 2021 3:58 pm
kellykline wrote: Thu Apr 01, 2021 1:10 am I still don't get it though, the IBKR margin page just adds $5,000 to my minimum maintenance, and about $4,900 to the Equity w/Loan.
So this is NOT a loan?? What's the use of this box if it just raises the maintenance by the same amount as it adds to Equity?

Someone please explain!
Isn't that how every loan ever works? The amount of liabilities (MM) increases by the same amount as your assets (equity w/Loan). If you use portfolio margin, then both MM and EWL simply stay the same before and after.

I mean, what did you want, Equity w loan to go up but MM stay the same? Did you just think this was free money? It's a loan, not free capital.
kellykline wrote: Thu Apr 01, 2021 2:23 pm So my box was filled at $24.50. But it doesn't do anything to my margin??? It's not like I have additional buying power. Margins are the same minus the amount paid for the loan. What is this scam, totally bs!!!
Whatever buying power regular margin gives you, is the same buying power (well, a little less if using Reg T) when selling a box spread. So a box spread is a way to borrow as much money as margin already lets you (again, a little less) but paying a much lower rate. It is not a way to somehow borrow more than margin could.
\\

But this loan is bullocks, because you can't withdraw the cash, you can't buy more shares, what good is this [expletive deleted by moderator oldcomputerguy] other than taking up space on my positions screen??? I'd expect a loan to allow me to at least buy more shares. Also, this doesn't even help with margin, you'd still be paying for margin since this box keeps everything the same!


when the box was sold, shouldn't it add about $4,850 to my account? instead, that $4,850 is held up by IBKR. There is no positive benefit of selling the box, IBKR gets the money and earns interest on it, but IBKR won't let you withdraw or do anything with the cash since $4,850 is also added on to the margin maintenance.

Case in point - the Current Available Funds or Current Excess Liquidity is the same value as before selling the box. So the box is pretty much worthless, and actually costs $150 over 3 years. whoever wrote about selling boxes as a "cheap loan" is a liar!
langlands
Posts: 1081
Joined: Wed Apr 03, 2019 10:05 pm

Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by langlands »

kellykline wrote: Thu Apr 01, 2021 6:12 pm
UberGrub wrote: Thu Apr 01, 2021 3:58 pm
kellykline wrote: Thu Apr 01, 2021 1:10 am I still don't get it though, the IBKR margin page just adds $5,000 to my minimum maintenance, and about $4,900 to the Equity w/Loan.
So this is NOT a loan?? What's the use of this box if it just raises the maintenance by the same amount as it adds to Equity?

Someone please explain!
Isn't that how every loan ever works? The amount of liabilities (MM) increases by the same amount as your assets (equity w/Loan). If you use portfolio margin, then both MM and EWL simply stay the same before and after.

I mean, what did you want, Equity w loan to go up but MM stay the same? Did you just think this was free money? It's a loan, not free capital.
kellykline wrote: Thu Apr 01, 2021 2:23 pm So my box was filled at $24.50. But it doesn't do anything to my margin??? It's not like I have additional buying power. Margins are the same minus the amount paid for the loan. What is this scam, totally bs!!!
Whatever buying power regular margin gives you, is the same buying power (well, a little less if using Reg T) when selling a box spread. So a box spread is a way to borrow as much money as margin already lets you (again, a little less) but paying a much lower rate. It is not a way to somehow borrow more than margin could.
\\

But this loan is bullocks, because you can't withdraw the cash, you can't buy more shares, what good is this [expletive deleted by moderator oldcomputerguy] other than taking up space on my positions screen??? I'd expect a loan to allow me to at least buy more shares. Also, this doesn't even help with margin, you'd still be paying for margin since this box keeps everything the same!


when the box was sold, shouldn't it add about $4,850 to my account? instead, that $4,850 is held up by IBKR. There is no positive benefit of selling the box, IBKR gets the money and earns interest on it, but IBKR won't let you withdraw or do anything with the cash since $4,850 is also added on to the margin maintenance.

Case in point - the Current Available Funds or Current Excess Liquidity is the same value as before selling the box. So the box is pretty much worthless, and actually costs $150 over 3 years. whoever wrote about selling boxes as a "cheap loan" is a liar!
You need to give more details about the account you're doing this in. I assume it's taxable right? Do you have portfolio margin? What options tier are you at? Basically it sounds like the margin maintenance is 100% on your box spread trade when it should be much lower if IBKR understood the low risk nature of the trade. It has been done successfully by many people so it's definitely not a scam.
Topic Author
kellykline
Posts: 84
Joined: Sun Apr 17, 2016 9:12 am

Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by kellykline »

langlands wrote: Thu Apr 01, 2021 6:38 pm
kellykline wrote: Thu Apr 01, 2021 6:12 pm
UberGrub wrote: Thu Apr 01, 2021 3:58 pm
kellykline wrote: Thu Apr 01, 2021 1:10 am I still don't get it though, the IBKR margin page just adds $5,000 to my minimum maintenance, and about $4,900 to the Equity w/Loan.
So this is NOT a loan?? What's the use of this box if it just raises the maintenance by the same amount as it adds to Equity?

Someone please explain!
Isn't that how every loan ever works? The amount of liabilities (MM) increases by the same amount as your assets (equity w/Loan). If you use portfolio margin, then both MM and EWL simply stay the same before and after.

I mean, what did you want, Equity w loan to go up but MM stay the same? Did you just think this was free money? It's a loan, not free capital.
kellykline wrote: Thu Apr 01, 2021 2:23 pm So my box was filled at $24.50. But it doesn't do anything to my margin??? It's not like I have additional buying power. Margins are the same minus the amount paid for the loan. What is this scam, totally bs!!!
Whatever buying power regular margin gives you, is the same buying power (well, a little less if using Reg T) when selling a box spread. So a box spread is a way to borrow as much money as margin already lets you (again, a little less) but paying a much lower rate. It is not a way to somehow borrow more than margin could.
\\

But this loan is bullocks, because you can't withdraw the cash, you can't buy more shares, what good is this [expletive deleted by moderator oldcomputerguy] other than taking up space on my positions screen??? I'd expect a loan to allow me to at least buy more shares. Also, this doesn't even help with margin, you'd still be paying for margin since this box keeps everything the same!


when the box was sold, shouldn't it add about $4,850 to my account? instead, that $4,850 is held up by IBKR. There is no positive benefit of selling the box, IBKR gets the money and earns interest on it, but IBKR won't let you withdraw or do anything with the cash since $4,850 is also added on to the margin maintenance.

Case in point - the Current Available Funds or Current Excess Liquidity is the same value as before selling the box. So the box is pretty much worthless, and actually costs $150 over 3 years. whoever wrote about selling boxes as a "cheap loan" is a liar!
You need to give more details about the account you're doing this in. I assume it's taxable right? Do you have portfolio margin? What options tier are you at? Basically it sounds like the margin maintenance is 100% on your box spread trade when it should be much lower if IBKR understood the low risk nature of the trade. It has been done successfully by many people so it's definitely not a scam.
Yes, maintenance margin is at 100% of the box.
No portfolio margin, it’ll make my mnt margin worse even though I have mainly low volatility JPST and muni bonds.
Taxable account, yes.
The highest options tier.

It didn’t work for me, total waste of $150. Now I’m trying to buy the box back.
pleonasm
Posts: 34
Joined: Tue Oct 15, 2019 11:59 pm

Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by pleonasm »

You got a loan of $4900 from the market instead of IBKR. You didn't "create" $4900, you simply changed who you owed it to. You now owe your option counterparties $0.50 of the contract value at expiration instead of paying the 1% APR to IBKR.

Boxes should only be used by people interested in going into margin debt- but do not want to pay Fidelity/TDA usury. At 1% at IBKR or no/low margin utilization you should not use them.
langlands
Posts: 1081
Joined: Wed Apr 03, 2019 10:05 pm

Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by langlands »

kellykline wrote: Thu Apr 01, 2021 7:02 pm
langlands wrote: Thu Apr 01, 2021 6:38 pm You need to give more details about the account you're doing this in. I assume it's taxable right? Do you have portfolio margin? What options tier are you at? Basically it sounds like the margin maintenance is 100% on your box spread trade when it should be much lower if IBKR understood the low risk nature of the trade. It has been done successfully by many people so it's definitely not a scam.
Yes, maintenance margin is at 100% of the box.
No portfolio margin, it’ll make my mnt margin worse even though I have mainly low volatility JPST and muni bonds.
Taxable account, yes.
The highest options tier.

It didn’t work for me, total waste of $150. Now I’m trying to buy the box back.
If you don't have portfolio margin, I believe the maintenance requirement is indeed 100%, same as for an IRA account:
https://www.interactivebrokers.com/en/index.php?f=26660

It's possible portfolio margin is needed to actually take advantage of the box spread.
langlands
Posts: 1081
Joined: Wed Apr 03, 2019 10:05 pm

Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by langlands »

pleonasm wrote: Thu Apr 01, 2021 7:05 pm You got a loan of $4900 from the market instead of IBKR. You didn't "create" $4900, you simply changed who you owed it to. You now owe your option counterparties $0.50 of the contract value at expiration instead of paying the 1% APR to IBKR.

Boxes should only be used by people interested in going into margin debt- but do not want to pay Fidelity/TDA usury. At 1% at IBKR or no/low margin utilization you should not use them.
I believe OP knows that. The problem is that 100% of the cash is being held up as collateral to support the trade.

Is there any particular negative to using them, other than the hassle?
inbox788
Posts: 8192
Joined: Thu Mar 15, 2012 5:24 pm

Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by inbox788 »

nalor511 wrote: Thu Apr 01, 2021 3:02 pmIB is pretty aggressive about selling your investments if they drop, and not just "calling" like other brokers, is what I've read, which has made me not take margin with them despite the otherwise attractive rate
I don't think it just aggressive, but automatic. Had it happen to me recently, but turns out the closed exactly the position I would have. Don't know if the algo is smart or I just got lucky. There are lots of regulations, so I wouldn't recommend getting anywhere near where a 20 or 30 percent change would trigger a cascade of undesirable events.

Box spreads are composed of verticals (call spread, put spread), which actually require LESS margin, as long as they're paired up.

https://www.interactivebrokers.com/en/index.php?f=26660
Last edited by inbox788 on Thu Apr 01, 2021 7:26 pm, edited 1 time in total.
Topic Author
kellykline
Posts: 84
Joined: Sun Apr 17, 2016 9:12 am

Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by kellykline »

langlands wrote: Thu Apr 01, 2021 7:11 pm
pleonasm wrote: Thu Apr 01, 2021 7:05 pm You got a loan of $4900 from the market instead of IBKR. You didn't "create" $4900, you simply changed who you owed it to. You now owe your option counterparties $0.50 of the contract value at expiration instead of paying the 1% APR to IBKR.

Boxes should only be used by people interested in going into margin debt- but do not want to pay Fidelity/TDA usury. At 1% at IBKR or no/low margin utilization you should not use them.
I believe OP knows that. The problem is that 100% of the cash is being held up as collateral to support the trade.

Is there any particular negative to using them, other than the hassle?
so should I just buy the box back? this is going to be tough, 2023 boxes are so illiquid!
and in IBKR, it's weird, I have to "sell" the box I sold and enter a -ve amount, which results in a debit of 49.50. So confusing.

Anyway, here's what my current box looks like, let me know if this is the proper set up. I calculated the options and they indeed add up to a $4,850 credit. It's just that 100% of that is tied up as collateral, yielding ZERO benefits. In fact, I'll lose money holding this box. I'm paying 1% interest on this piece of crap!

Image
UberGrub
Posts: 160
Joined: Wed Aug 21, 2019 3:47 pm

Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by UberGrub »

kellykline wrote: Thu Apr 01, 2021 6:12 pm
UberGrub wrote: Thu Apr 01, 2021 3:58 pm
kellykline wrote: Thu Apr 01, 2021 1:10 am I still don't get it though, the IBKR margin page just adds $5,000 to my minimum maintenance, and about $4,900 to the Equity w/Loan.
So this is NOT a loan?? What's the use of this box if it just raises the maintenance by the same amount as it adds to Equity?

Someone please explain!
Isn't that how every loan ever works? The amount of liabilities (MM) increases by the same amount as your assets (equity w/Loan). If you use portfolio margin, then both MM and EWL simply stay the same before and after.

I mean, what did you want, Equity w loan to go up but MM stay the same? Did you just think this was free money? It's a loan, not free capital.
kellykline wrote: Thu Apr 01, 2021 2:23 pm So my box was filled at $24.50. But it doesn't do anything to my margin??? It's not like I have additional buying power. Margins are the same minus the amount paid for the loan. What is this scam, totally bs!!!
Whatever buying power regular margin gives you, is the same buying power (well, a little less if using Reg T) when selling a box spread. So a box spread is a way to borrow as much money as margin already lets you (again, a little less) but paying a much lower rate. It is not a way to somehow borrow more than margin could.
\\

But this loan is bullocks, because you can't withdraw the cash, you can't buy more shares, what good is this [expletive deleted by moderator oldcomputerguy] other than taking up space on my positions screen??? I'd expect a loan to allow me to at least buy more shares. Also, this doesn't even help with margin, you'd still be paying for margin since this box keeps everything the same!


when the box was sold, shouldn't it add about $4,850 to my account? instead, that $4,850 is held up by IBKR. There is no positive benefit of selling the box, IBKR gets the money and earns interest on it, but IBKR won't let you withdraw or do anything with the cash since $4,850 is also added on to the margin maintenance.

Case in point - the Current Available Funds or Current Excess Liquidity is the same value as before selling the box. So the box is pretty much worthless, and actually costs $150 over 3 years. whoever wrote about selling boxes as a "cheap loan" is a liar!
Did your cash balance increase by $4850 after selling the box?
UberGrub
Posts: 160
Joined: Wed Aug 21, 2019 3:47 pm

Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by UberGrub »

Tingting1013 wrote: Thu Apr 01, 2021 4:30 pm
UberGrub wrote: Thu Apr 01, 2021 4:23 pm
langlands wrote: Thu Apr 01, 2021 4:15 pm
Tingting1013 wrote: Thu Apr 01, 2021 2:58 pm
kellykline wrote: Thu Apr 01, 2021 2:23 pm

So my box was filled at $24.50. But it doesn't do anything to my margin??? It's not like I have additional buying power. Margins are the same minus the amount paid for the loan. What is this scam, totally bs!!!
Lol.

Seems like a lot of work for not that much marginal benefit.

IB offers Straight margin at 1%
Well the benefit seems to be about 0.3% which I think is non-negligible. Assuming there are no down sides to a box spread vs. IBKR margin, it's probably worth spending a couple days figuring out how it works. It seems like something you need to rollover at most once a year.
How do you figure 0.3%? The IBKR margin rate is 1.56% for anything under $100K. And a box spread is about 0.5% in my (limited) experience, so we're talking about a benefit >1%. And the box spread is fully tax-deductible without a need to itemize on top of it.
1.06% if you sign up for an account here (and you should)

https://www.interactivebrokers.com/en/? ... nr=stkbrks
Whoah neat offer, thanks!
pleonasm
Posts: 34
Joined: Tue Oct 15, 2019 11:59 pm

Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by pleonasm »

langlands wrote: Thu Apr 01, 2021 7:11 pm
pleonasm wrote: Thu Apr 01, 2021 7:05 pm You got a loan of $4900 from the market instead of IBKR. You didn't "create" $4900, you simply changed who you owed it to. You now owe your option counterparties $0.50 of the contract value at expiration instead of paying the 1% APR to IBKR.

Boxes should only be used by people interested in going into margin debt- but do not want to pay Fidelity/TDA usury. At 1% at IBKR or no/low margin utilization you should not use them.
I believe OP knows that. The problem is that 100% of the cash is being held up as collateral to support the trade.

Is there any particular negative to using them, other than the hassle?
Not in my experience. Yes there is maintenance but it's the normal 25% for me.
Image

I receive $19920 after fees that are now moved from margin debt to normal. I take the 25% maintenance requirement hit. I still have 75% of the credit to trade as normal for $70 over the next 5 months.
langlands
Posts: 1081
Joined: Wed Apr 03, 2019 10:05 pm

Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by langlands »

kellykline wrote: Thu Apr 01, 2021 7:25 pm ...
Did you see my other post? You need portfolio margin to reduce maintenance margin on your box spread.
Topic Author
kellykline
Posts: 84
Joined: Sun Apr 17, 2016 9:12 am

Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by kellykline »

UberGrub wrote: Thu Apr 01, 2021 7:31 pm Did your cash balance increase by $4850 after selling the box?
It did, but it's moot since my RegT Margin also increased by $5,000.
My SMA did not change. Can't withdraw the cash, what's the use of this?
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