Box Spreads as Loans - Interactive Brokers IBKR - 2021 [and later]

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Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

Fxmove88 wrote: Mon Oct 25, 2021 5:58 pm I have tried shorting other currency boxes on my paper account: Euro (CAC40, DJSD, ETX50 Box), GBP (Z Box), SEK (OSMX530 Box). I have yet succeeded in shorting SMI Box to get the CHF since I want to buy some Swiss stocks.

Has anyone else tried other currency boxes? AUD? JPY? SGD?
I succeeded in getting CHF Funding through SMI Box in my real account. Like Euro, this CHF box also gives interest.
calwatch
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by calwatch »

spiyer99 wrote: Tue Oct 26, 2021 2:29 am Not sure if this has been covered before, but what do people think of this? https://www.greaterwrong.com/posts/8NSK ... tly-faster

The author talks about using a box spread in a CD. "After taxes and commissions, this increases annual returns on your entire portfolio by 0.2-0.5%, nearly risk-free." Is it really worth the risk though?

PS: long time lurker, first time poster.
I don't think there's anything wrong with this per se, but the juice gained from this is similar to other tactics like shifting accounts around, opening up accounts for the bank bonus, or credit card balance transfer arbitrage. Note that with a box spread in place, I would not recommend taking advantage of transfer bonuses just because of the risk of screwing it up in the ACAT process. I personally am using it for "lifecycle investing" in this current positive momentum cycle, cognizant of the risks involved.
drk
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by drk »

spiyer99 wrote: Tue Oct 26, 2021 2:29 am Not sure if this has been covered before, but what do people think of this? https://www.greaterwrong.com/posts/8NSK ... tly-faster

The author talks about using a box spread in a CD. "After taxes and commissions, this increases annual returns on your entire portfolio by 0.2-0.5%, nearly risk-free." Is it really worth the risk though?

PS: long time lurker, first time poster.
Looks like 2-year CDs yield 0.45-0.55% APR. Without looking up the rates for Dec 2023 spreads, I don't think you would make any money with that strategy right now. If you want to do something like this, I would recommend chasing bank account bonuses. If you sell a spread for $20k, you could use the cash to collect a couple hundred dollars in bonuses every quarter.
A useful razor: anyone asking about speculative strategies on Bogleheads.org has no business using them.
adamhg
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

comeinvest wrote: Thu Oct 21, 2021 2:00 am I would say a box spread is fungible, as arbitrage traders, banks, or hedge funds could borrow in the interbank market or from money market funds, and invest in boxes. Risk free cash is fungible with risk free cash. It must have to do with balance sheet restrictions. I found the rate is slightly higher than the current yield of the most conservative money market funds. Might be a good method to park cash if needed.
I was thinking about exactly this as well. With interest rates at/near 0, it seems like buying a box could be a good alternative to parking cash in a high yield checking account, and with the liquidity of boxes, does anybody use these as a viable alternative to a savings account or even CD with a higher rate but with interest rate risk if liquidated early?
adamhg
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

Punter wrote: Mon Oct 25, 2021 11:49 pm Finally, great website @adamhg . I will make sure to check it next time, definitely some room for improvement on my first box! (4400 - 4200 Sep 22 @ 0.65%)
Thank you! I am thinking about adding a calculator to translate interest rates into spread legs. Do you think that'd be helpful?
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

adamhg wrote: Tue Oct 26, 2021 2:25 pm
comeinvest wrote: Thu Oct 21, 2021 2:00 am I would say a box spread is fungible, as arbitrage traders, banks, or hedge funds could borrow in the interbank market or from money market funds, and invest in boxes. Risk free cash is fungible with risk free cash. It must have to do with balance sheet restrictions. I found the rate is slightly higher than the current yield of the most conservative money market funds. Might be a good method to park cash if needed.
I was thinking about exactly this as well. With interest rates at/near 0, it seems like buying a box could be a good alternative to parking cash in a high yield checking account, and with the liquidity of boxes, does anybody use these as a viable alternative to a savings account or even CD with a higher rate but with interest rate risk if liquidated early?
Buying a box is definitely better than depositing money at a small bank to get high interest. OCC is your counter party and it will guarantee the return of your money. That’s why it is being used by the company that has $3,5billion in cash.
Last edited by Fxmove88 on Tue Oct 26, 2021 10:38 pm, edited 1 time in total.
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

adamhg wrote: Tue Oct 26, 2021 2:26 pm
Punter wrote: Mon Oct 25, 2021 11:49 pm Finally, great website @adamhg . I will make sure to check it next time, definitely some room for improvement on my first box! (4400 - 4200 Sep 22 @ 0.65%)
Thank you! I am thinking about adding a calculator to translate interest rates into spread legs. Do you think that'd be helpful?
It would be helpful if you could highlight which date has the lowest interest rate. Lately interest rate has been increasing.

For bigger amount, option fees are negligible perhaps it is better to fund short term rather than long term ?
econalex
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by econalex »

Lots of "smaller" things to do. Other posters mentioned chasing bank/brokerage account bonuses. Also I must add that with T-Mobile money you can earn 4% on first $3000 and 1% on the rest of balance (no upper limit). One of the easier way to arbitrage. Also I-Bonds right now :beer

What I have done is to pay off higher interest car loan/leases and may actually sell 1 car to take advantage of high used price. Down-payment for a small (relative to your taxable account that is) property? :sharebeer
adamhg
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

Image

Ouch! $250 for a $5,000 loan :x On a day rates are down 5% no less...
adamhg
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

Fxmove88 wrote: Tue Oct 26, 2021 10:32 pm It would be helpful if you could highlight which date has the lowest interest rate. Lately interest rate has been increasing.

For bigger amount, option fees are negligible perhaps it is better to fund short term rather than long term ?
Short term is generally going to be lower rates unless the yield curve is inverted. Box spread rates should follow institutional rates + small premium, so that wouldn't really change. I think its really up to you. You can go with a higher DTE to lock in lower rates today if you think they're going up in the future, or if you think they'll continue to fall or stay the same, then go with a shorter DTE to keep your options open.

Also need to consider that you probably won't be able to roll a box directly, so there will be some roll drag at your broker's margin's rates for the duration it takes your new box to be filled.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

adamhg wrote: Wed Oct 27, 2021 2:24 pm
Fxmove88 wrote: Tue Oct 26, 2021 10:32 pm It would be helpful if you could highlight which date has the lowest interest rate. Lately interest rate has been increasing.

For bigger amount, option fees are negligible perhaps it is better to fund short term rather than long term ?
Short term is generally going to be lower rates unless the yield curve is inverted. Box spread rates should follow institutional rates + small premium, so that wouldn't really change. I think its really up to you. You can go with a higher DTE to lock in lower rates today if you think they're going up in the future, or if you think they'll continue to fall or stay the same, then go with a shorter DTE to keep your options open.

Also need to consider that you probably won't be able to roll a box directly, so there will be some roll drag at your broker's margin's rates for the duration it takes your new box to be filled.
Is it worth paying the broker's margin for an unknown number of days, vs. forcing a fill on the day of expiration by lowering the limit?
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

Freebee34 wrote: Tue Oct 05, 2021 10:08 pm Been doing short SPX box spreads for a year and a half and getting 0.5%-0.6% on amounts of $20K - $100K. overall a good experience. here are some tips that I have learned along the way:
  • For faster execution (less than 2 hours) and better pricing I found that breaking up the trade into call spreads and put spreads is more effective. When submitting the entire box it would take DAYS for the trade to execute at a higher interest rate (0.75%+)
  • usually the last term is the least liquid. the second last one is usually much better

Would you care to elaborate further on how to sell a box by breaking up the trades into call spreads and put spreads? At what price on each trade and its calculation so you can come up to the desired interest rate? thank you.
Freebee34
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Freebee34 »

Fxmove88 wrote: Thu Oct 28, 2021 8:28 pm
Freebee34 wrote: Tue Oct 05, 2021 10:08 pm Been doing short SPX box spreads for a year and a half and getting 0.5%-0.6% on amounts of $20K - $100K. overall a good experience. here are some tips that I have learned along the way:
  • For faster execution (less than 2 hours) and better pricing I found that breaking up the trade into call spreads and put spreads is more effective. When submitting the entire box it would take DAYS for the trade to execute at a higher interest rate (0.75%+)
  • usually the last term is the least liquid. the second last one is usually much better

Would you care to elaborate further on how to sell a box by breaking up the trades into call spreads and put spreads? At what price on each trade and its calculation so you can come up to the desired interest rate? thank you.
Shorting a box is the same as selling a call and a put spread with the same strike and expiry. For example the 2022 December 16 4700/4500 call spread is trading for 416.12 - 293.50 = 122.62 and the put spread is trading for 412.93- 349.50 = 63.43

I would put in as sell order for the put spread at 130 and for the call spread at 67 and wait a of couple hours to see which one get picked off first. Then I would slowly lower my offer on the other spread until I get filled or the mid. In practice what happens is you are providing a liquidity premium to whatever side the market is pushing (bearish or bullish) and then closing out the other side at a reasonable rate. It sounds strange but I have always gotten quick fills at good rates using this approach.
bling
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by bling »

Freebee34 wrote: Fri Oct 29, 2021 10:18 pm I would put in as sell order for the put spread at 130 and for the call spread at 67 and wait a of couple hours to see which one get picked off first. Then I would slowly lower my offer on the other spread until I get filled or the mid. In practice what happens is you are providing a liquidity premium to whatever side the market is pushing (bearish or bullish) and then closing out the other side at a reasonable rate. It sounds strange but I have always gotten quick fills at good rates using this approach.
both orders should be "net credit", and the sum of both should add up to the spread minus interest, right?
Freebee34
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Freebee34 »

bling wrote: Sat Oct 30, 2021 2:49 pm
Freebee34 wrote: Fri Oct 29, 2021 10:18 pm I would put in as sell order for the put spread at 130 and for the call spread at 67 and wait a of couple hours to see which one get picked off first. Then I would slowly lower my offer on the other spread until I get filled or the mid. In practice what happens is you are providing a liquidity premium to whatever side the market is pushing (bearish or bullish) and then closing out the other side at a reasonable rate. It sounds strange but I have always gotten quick fills at good rates using this approach.
both orders should be "net credit", and the sum of both should add up to the spread minus interest, right?
Yeah both are credits and your effective interest will be: (spread of the strikes - gross credit received )/ gross credit received
bling
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by bling »

Freebee34 wrote: Sat Oct 30, 2021 4:12 pm
bling wrote: Sat Oct 30, 2021 2:49 pm
Freebee34 wrote: Fri Oct 29, 2021 10:18 pm I would put in as sell order for the put spread at 130 and for the call spread at 67 and wait a of couple hours to see which one get picked off first. Then I would slowly lower my offer on the other spread until I get filled or the mid. In practice what happens is you are providing a liquidity premium to whatever side the market is pushing (bearish or bullish) and then closing out the other side at a reasonable rate. It sounds strange but I have always gotten quick fills at good rates using this approach.
both orders should be "net credit", and the sum of both should add up to the spread minus interest, right?
Yeah both are credits and your effective interest will be: (spread of the strikes - gross credit received )/ gross credit received
thanks, i may give this a shot on my merrill account, where i don't have level 5 options yet. i'm too skittish to try this on my IBKR account due to "the algorithm".
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

Freebee34 wrote: Fri Oct 29, 2021 10:18 pm Shorting a box is the same as selling a call and a put spread with the same strike and expiry. For example the 2022 December 16 4700/4500 call spread is trading for 416.12 - 293.50 = 122.62 and the put spread is trading for 412.93- 349.50 = 63.43

I would put in as sell order for the put spread at 130 and for the call spread at 67 and wait a of couple hours to see which one get picked off first. Then I would slowly lower my offer on the other spread until I get filled or the mid. In practice what happens is you are providing a liquidity premium to whatever side the market is pushing (bearish or bullish) and then closing out the other side at a reasonable rate. It sounds strange but I have always gotten quick fills at good rates using this approach.
Thank you Freebee34 for the insight. I just traded the way you said it on my paper account and it is indeed a very quick fill.

SPX Bear Spread
SPX Dec 15 '22 4700/4500 Bear Put
Sold 1 limit 80.00 Day

and

SPX Bull Spread
SPX Dec 15 '22 4500/4700 Bull Call
Sold 1 limit 127.40 Day

was this a negative interest borrowing? ie. I am being rewarded with interest for borrowing.

My only concerns is what if the Second Spread Combo is failed to be executed? Would I be left with only one Combo executed?
Or both will always be executed, it's just a matter of price.
calwatch
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by calwatch »

If it's a paper account it's a hypothetical fill. Due to the thinly traded nature of boxes and long dated index option spreads you will need to risk real money in order to see if it will really fill, unfortunately.
ID123
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by ID123 »

SPX added LEAPs to Dec17 '26 so 5+ year fixed rate loans are now a thing.
stay_the_course
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by stay_the_course »

ID123 wrote: Mon Nov 01, 2021 2:06 pm SPX added LEAPs to Dec17 '26 so 5+ year fixed rate loans are now a thing.
Given that 5 year treasuries are around 1.20%, I guess box spreads expiring in ‘26 will have an implied interest of at least 1.50%.
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whodidntante
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by whodidntante »

Fxmove88 wrote: Mon Nov 01, 2021 8:55 am
Freebee34 wrote: Fri Oct 29, 2021 10:18 pm Shorting a box is the same as selling a call and a put spread with the same strike and expiry. For example the 2022 December 16 4700/4500 call spread is trading for 416.12 - 293.50 = 122.62 and the put spread is trading for 412.93- 349.50 = 63.43

I would put in as sell order for the put spread at 130 and for the call spread at 67 and wait a of couple hours to see which one get picked off first. Then I would slowly lower my offer on the other spread until I get filled or the mid. In practice what happens is you are providing a liquidity premium to whatever side the market is pushing (bearish or bullish) and then closing out the other side at a reasonable rate. It sounds strange but I have always gotten quick fills at good rates using this approach.
Thank you Freebee34 for the insight. I just traded the way you said it on my paper account and it is indeed a very quick fill.

SPX Bear Spread
SPX Dec 15 '22 4700/4500 Bear Put
Sold 1 limit 80.00 Day

and

SPX Bull Spread
SPX Dec 15 '22 4500/4700 Bull Call
Sold 1 limit 127.40 Day

was this a negative interest borrowing? ie. I am being rewarded with interest for borrowing.

My only concerns is what if the Second Spread Combo is failed to be executed? Would I be left with only one Combo executed?
Or both will always be executed, it's just a matter of price.
Paper fills don't mean you can fill for real money.
The good news is that any reasonable fill right now is likely to produce a positive return after inflation. That is, the loan itself is profitable in real terms, and you get to realize a capital loss. Don't tell the IRS. :twisted:
rickyroxy83
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by rickyroxy83 »

Got one filled for $300k for 12/14/2023 0.99%. Is it good?
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

stay_the_course wrote: Mon Nov 01, 2021 7:10 pm
ID123 wrote: Mon Nov 01, 2021 2:06 pm SPX added LEAPs to Dec17 '26 so 5+ year fixed rate loans are now a thing.
Given that 5 year treasuries are around 1.20%, I guess box spreads expiring in ‘26 will have an implied interest of at least 1.50%.
Not only that, but your actual current cost could be estimated as negative the current carry of a 5 year treasury investment, which including the rolldown return is around 2% now. In other words, you would be paying the term premium that others earn. Terrible choice in my opinion.
Last edited by comeinvest on Tue Nov 02, 2021 7:11 pm, edited 1 time in total.
Freebee34
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Freebee34 »

Fxmove88 wrote: Mon Nov 01, 2021 8:55 am
Freebee34 wrote: Fri Oct 29, 2021 10:18 pm Shorting a box is the same as selling a call and a put spread with the same strike and expiry. For example the 2022 December 16 4700/4500 call spread is trading for 416.12 - 293.50 = 122.62 and the put spread is trading for 412.93- 349.50 = 63.43

I would put in as sell order for the put spread at 130 and for the call spread at 67 and wait a of couple hours to see which one get picked off first. Then I would slowly lower my offer on the other spread until I get filled or the mid. In practice what happens is you are providing a liquidity premium to whatever side the market is pushing (bearish or bullish) and then closing out the other side at a reasonable rate. It sounds strange but I have always gotten quick fills at good rates using this approach.
Thank you Freebee34 for the insight. I just traded the way you said it on my paper account and it is indeed a very quick fill.

SPX Bear Spread
SPX Dec 15 '22 4700/4500 Bear Put
Sold 1 limit 80.00 Day

and

SPX Bull Spread
SPX Dec 15 '22 4500/4700 Bull Call
Sold 1 limit 127.40 Day

was this a negative interest borrowing? ie. I am being rewarded with interest for borrowing.

My only concerns is what if the Second Spread Combo is failed to be executed? Would I be left with only one Combo executed?
Or both will always be executed, it's just a matter of price.
Congratulations!!! It looks like you made negative rates on the one lot. You can always get executed on the other side, it just depends on the price. Sometimes it is more favourable, sometimes less so.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

Freebee34 wrote: Tue Nov 02, 2021 7:23 am
Fxmove88 wrote: Mon Nov 01, 2021 8:55 am
Freebee34 wrote: Fri Oct 29, 2021 10:18 pm Shorting a box is the same as selling a call and a put spread with the same strike and expiry. For example the 2022 December 16 4700/4500 call spread is trading for 416.12 - 293.50 = 122.62 and the put spread is trading for 412.93- 349.50 = 63.43

I would put in as sell order for the put spread at 130 and for the call spread at 67 and wait a of couple hours to see which one get picked off first. Then I would slowly lower my offer on the other spread until I get filled or the mid. In practice what happens is you are providing a liquidity premium to whatever side the market is pushing (bearish or bullish) and then closing out the other side at a reasonable rate. It sounds strange but I have always gotten quick fills at good rates using this approach.
Thank you Freebee34 for the insight. I just traded the way you said it on my paper account and it is indeed a very quick fill.

SPX Bear Spread
SPX Dec 15 '22 4700/4500 Bear Put
Sold 1 limit 80.00 Day

and

SPX Bull Spread
SPX Dec 15 '22 4500/4700 Bull Call
Sold 1 limit 127.40 Day

was this a negative interest borrowing? ie. I am being rewarded with interest for borrowing.

My only concerns is what if the Second Spread Combo is failed to be executed? Would I be left with only one Combo executed?
Or both will always be executed, it's just a matter of price.
Congratulations!!! It looks like you made negative rates on the one lot. You can always get executed on the other side, it just depends on the price. Sometimes it is more favourable, sometimes less so.
First off, this seems like a very interesting approach. But there are a few caveats:
- How does IB simulate fills of liquidity-providing orders? Can you get similar rates in a live account?
- Whenever you use non-marketable limit orders, your execution quality might be better in slow moving markets, but you might suffer comparatively large losses in more rare events of fast-moving markets, as your stale limit order will be picked up by swing traders who trade based on news flow or market movements. This effect is magnified when you trade the legs of the box separately, as only part of your box will be filled and you will be stuck with the other part at unfavorable prices if the market moved. Only a long-term study could show which strategy is better in the long run.
- It may only work with small boxes. I think the individual legs or the put and call spread portions of larger boxes would have much less volume i.e. non-marketable limit orders may not get fills. I am just speculating here, happy to hear real success or failure stories.
InvestorDave
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by InvestorDave »

Anyone else having a harder time getting fills at current treasury rate + 0.3%?
tananaev
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by tananaev »

I'm also having hard time getting fills. Could be that market rates are going higher because of upcoming fed tapering. Or could be just too many people found out about this trick and that's pushing prices higher.

When you say "current treasury rate", do you look at the 2 year or 3 year treasury? I'm selling Dec 23 options. I'm assuming 2 years, right?
adamhg
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

tananaev wrote: Wed Nov 03, 2021 7:44 pm I'm also having hard time getting fills. Could be that market rates are going higher because of upcoming fed tapering. Or could be just too many people found out about this trick and that's pushing prices higher.

When you say "current treasury rate", do you look at the 2 year or 3 year treasury? I'm selling Dec 23 options. I'm assuming 2 years, right?
Lowest somebody got today for Dec 23 was 0.9% ($981 for $1000 wide legs) so that could be a good place to start or just under there
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

adamhg wrote: Wed Nov 03, 2021 9:11 pm
tananaev wrote: Wed Nov 03, 2021 7:44 pm I'm also having hard time getting fills. Could be that market rates are going higher because of upcoming fed tapering. Or could be just too many people found out about this trick and that's pushing prices higher.

When you say "current treasury rate", do you look at the 2 year or 3 year treasury? I'm selling Dec 23 options. I'm assuming 2 years, right?
Lowest somebody got today for Dec 23 was 0.9% ($981 for $1000 wide legs) so that could be a good place to start or just under there
But with your method of identifying box spreads, you never know if the retail investor SOLD or BOUGHT the spread, do you? My understanding is that in the options market, at least for multi-legged options spreads, opposing client orders are rarely matched, but dealers compete for incoming client orders, and the dealers' bots are programmed to required some spread. One time when I bought one of my boxes back, there was a ca. 0.1% difference in rates (ca. 0.45% vs. 0.55%) when I bought it back vs. the rate that I paid. What I'm saying is, we cannot expect to get a rate similar to a rate from the trades history, as long as we don't know on which side the retail investor vs. the dealer was, can we?
adamhg
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

comeinvest wrote: Wed Nov 03, 2021 11:43 pm
adamhg wrote: Wed Nov 03, 2021 9:11 pm
tananaev wrote: Wed Nov 03, 2021 7:44 pm I'm also having hard time getting fills. Could be that market rates are going higher because of upcoming fed tapering. Or could be just too many people found out about this trick and that's pushing prices higher.

When you say "current treasury rate", do you look at the 2 year or 3 year treasury? I'm selling Dec 23 options. I'm assuming 2 years, right?
Lowest somebody got today for Dec 23 was 0.9% ($981 for $1000 wide legs) so that could be a good place to start or just under there
But with your method of identifying box spreads, you never know if the retail investor SOLD or BOUGHT the spread, do you? My understanding is that in the options market, at least for multi-legged options spreads, opposing client orders are rarely matched, but dealers compete for incoming client orders, and the dealers' bots are programmed to required some spread. One time when I bought one of my boxes back, there was a ca. 0.1% difference in rates (ca. 0.45% vs. 0.55%) when I bought it back vs. the rate that I paid. What I'm saying is, we cannot expect to get a rate similar to a rate from the trades history, as long as we don't know on which side the retail investor vs. the dealer was, can we?
Is true you won't know which side is taking and which side is adding liquidity, but I'd argue the history still gives you the range, unless you assume only one side ever makes trades. Starting at 0.9 gives you at least no worse than the last trade. If it were a buyer rather than a seller, then you start going up as you otherwise would have anyways. The top end of the range today was about 0.94-0.95% and so I'd expect to be filled at worst in that area.

I can't speak to the 20% spread, but arguably one side could be more illiquid than the other as well. Especially in these times with nearly unlimited liquidity, there might be much fewer entities willing to sell back their loans so to speak of they had no better alternative for it. Or it could have been as simple as the rate had moved away since you sold the box. Hopefully the history will give us a better idea as these things happen
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

adamhg wrote: Thu Nov 04, 2021 12:07 am Is true you won't know which side is taking and which side is adding liquidity, but I'd argue the history still gives you the range, unless you assume only one side ever makes trades. Starting at 0.9 gives you at least no worse than the last trade. If it were a buyer rather than a seller, then you start going up as you otherwise would have anyways. The top end of the range today was about 0.94-0.95% and so I'd expect to be filled at worst in that area.

I can't speak to the 20% spread, but arguably one side could be more illiquid than the other as well. Especially in these times with nearly unlimited liquidity, there might be much fewer entities willing to sell back their loans so to speak of they had no better alternative for it. Or it could have been as simple as the rate had moved away since you sold the box. Hopefully the history will give us a better idea as these things happen
I'm surely not dismissing the utility of your tool. Just saying, from my understanding, I would assume that given a certain daily range, I would expect to get filled at the higher end of the yield range when I sell a box (all other things being equal, i.e. the market not moving etc.), as the lower end of the yield range probably represents retail or other non-market makers buying that box. At least that's my understanding. I asked a similar question a while ago on Elite Trader, and if I remember right, the consensus was that there is no retail broker that allows viewing the complex order book of SPX options, i.e. only pro software allows this. So I must assume that all retail orders will be filled by dealers, and the retail clients will always pay the spread. (By "spread" I don't mean the spread of the visible quotes that are implied from the legs, which are rather meaningless, but the spread for combination box orders that the dealers' bots are programmed with.) Doesn't seem like a fair game in this age of supposedly free flow of information, but it is what it is.
adamhg
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

comeinvest wrote: Thu Nov 04, 2021 1:34 am I'm surely not dismissing the utility of your tool. Just saying, from my understanding, I would assume that given a certain daily range, I would expect to get filled at the higher end of the yield range when I sell a box (all other things being equal, i.e. the market not moving etc.), as the lower end of the yield range probably represents retail or other non-market makers buying that box. At least that's my understanding. I asked a similar question a while ago on Elite Trader, and if I remember right, the consensus was that there is no retail broker that allows viewing the complex order book of SPX options, i.e. only pro software allows this. So I must assume that all retail orders will be filled by dealers, and the retail clients will always pay the spread. (By "spread" I don't mean the spread of the visible quotes that are implied from the legs, which are rather meaningless, but the spread for combination box orders that the dealers' bots are programmed with.) Doesn't seem like a fair game in this age of supposedly free flow of information, but it is what it is.
Yep agree completely. I think that's a good expectation to set, that the best rates are probably more of a starting point than a target
msun641
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by msun641 »

Any chance the boxtrades.com site could be updated to include the new 5yr SPX options?
adamhg
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

msun641 wrote: Thu Nov 04, 2021 11:56 am Any chance the boxtrades.com site could be updated to include the new 5yr SPX options?
It's checking, but hasn't caught any box spread trades there yet
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

adamhg wrote: Thu Nov 04, 2021 12:00 pm
msun641 wrote: Thu Nov 04, 2021 11:56 am Any chance the boxtrades.com site could be updated to include the new 5yr SPX options?
It's checking, but hasn't caught any box spread trades there yet
How about /ES options boxes, please?
Also, do you capture SPXW options too, or just SPX?
It looks like there are different kinds of SPXW: Same expiration as SPX but PM-settled; end-of-month about a year out; weekly and quarterly.
On an unrelated note, I'm having a bit of a hard time understanding why there are AM and PM settled options with the same expiration, and how one would pick one or the other.
stay_the_course
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by stay_the_course »

comeinvest wrote: Thu Nov 04, 2021 6:19 pm
adamhg wrote: Thu Nov 04, 2021 12:00 pm
msun641 wrote: Thu Nov 04, 2021 11:56 am Any chance the boxtrades.com site could be updated to include the new 5yr SPX options?
It's checking, but hasn't caught any box spread trades there yet
How about /ES options boxes, please?
Also, do you capture SPXW options too, or just SPX?
It looks like there are different kinds of SPXW: Same expiration as SPX but PM-settled; end-of-month about a year out; weekly and quarterly.
On an unrelated note, I'm having a bit of a hard time understanding why there are AM and PM settled options with the same expiration, and how one would pick one or the other.
This video does a good job explaining the differences between AM and PM settled options https://www.youtube.com/watch?v=Gn_hectm2eU. For a box spread it probably makes no difference.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

stay_the_course wrote: Thu Nov 04, 2021 6:40 pm This video does a good job explaining the differences between AM and PM settled options https://www.youtube.com/watch?v=Gn_hectm2eU. For a box spread it probably makes no difference.
The video says nothing about why both AM and PM options exist even with the same expirations, and why anyone would prefer either one or the other. Even if it's not relevant to the scenario of box spreads.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by msun641 »

I filled 10000 at an implied 1.66% rate for 2026. Adam, were you able to catch it?
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

msun641 wrote: Fri Nov 05, 2021 10:10 am I filled 10000 at an implied 1.66% rate for 2026. Adam, were you able to catch it?
Caught my first 2025 and 2026 today. Not sure if the 2026 was you, but this is what I have:

Code: Select all

Date                Rate   Dte     Credit  Amount V LowS High Und Expiry     LowCall LowPut HighCa HighPut
2021-11-05 18:25:18 0.0126 1504.23 -474050 500000 1 2000 7000 SPX 2025-12-19 2627.94 78.39  89.33  2280.28
2021-11-05 14:36:45 0.0158 1868.39 -9190   10000  1 4600 4700 SPX 2026-12-18 887.03  750.94 837.43 793.24 
adamhg
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

comeinvest wrote: Thu Nov 04, 2021 6:19 pm How about /ES options boxes, please?
Also, do you capture SPXW options too, or just SPX?
...
My data source is just my brokerage which doesn't support futures / future options unfortunately so I can't do /ES. Shouldn't the rates be similar or are the DTEs too different?

The data source is also limited in something like 3000+ symbols that it'll allow me to stream. So I sort the list descending by expiry to prioritize longer dated options. Some SPXW used to make it onto the list, but after the 2025 and 2026 expirations came out, it only goes up mid-way through 2022 now so all weeklies are excluded.

Are people actually trading weeklies for boxes? I am guessing those are scalps or directional bets rather than for refinancing margin debt or is there a benefit in having such a short term loan that I'm overlooking?
parval
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by parval »

Can I verify this trade with yall?

If I hit transmit here, I'd get $485.38 cash credit and owe $500 on 2024/12/19, is that right?

Image
msun641
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by msun641 »

Yeah that's me. Cool that I might have made the first trade.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by sfmurph »

parval wrote: Fri Nov 05, 2021 3:03 pm Can I verify this trade with yall?

If I hit transmit here, I'd get $485.38 cash credit and owe $500 on 2024/12/19, is that right?

Image
You missed the multiplier. You'd get $48,538 cash credit and owe $50,000 on 2024/12/19.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

adamhg wrote: Fri Nov 05, 2021 2:24 pm
comeinvest wrote: Thu Nov 04, 2021 6:19 pm How about /ES options boxes, please?
Also, do you capture SPXW options too, or just SPX?
...
Are people actually trading weeklies for boxes? I am guessing those are scalps or directional bets rather than for refinancing margin debt or is there a benefit in having such a short term loan that I'm overlooking?
I traded weekly boxes to "pad" longer boxes, and to reduce financing cost on opportunistic trades. For wider boxes, the rates were similar to longer boxes. So yes, there are use cases for short boxes.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

msun641 wrote: Fri Nov 05, 2021 10:10 am I filled 10000 at an implied 1.66% rate for 2026. Adam, were you able to catch it?
I don't mean to disappoint you, but the 5-year treasury is at 1.05%, which means you paid a high slippage margin. (Although I'm not sure what duration the 5-year point on the yield curve would be equivalent to. If someone has more insight, please let me know.)

And regardless of what rate precisely you got, I think borrowing at this maturity is not a good idea, if it is for portfolio leverage. The 5-year usually has high risk-adjusted returns, which means you pay other people's profit. But maybe you used the loan for other purposes like real estate.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by parval »

comeinvest wrote: Fri Nov 05, 2021 5:20 pm
msun641 wrote: Fri Nov 05, 2021 10:10 am I filled 10000 at an implied 1.66% rate for 2026. Adam, were you able to catch it?
I don't mean to disappoint you, but the 5-year treasury is at 1.05%, which means you paid a high slippage margin. (Although I'm not sure what duration the 5-year point on the yield curve would be equivalent to. If someone has more insight, please let me know.)

And regardless of what rate precisely you got, I think borrowing at this maturity is not a good idea, if it is for portfolio leverage. The 5-year usually has high risk-adjusted returns, which means you pay other people's profit. But maybe you used the loan for other purposes like real estate.
Would you suggest 2-3 yr out boxes? Is there a good place to look for expected future yields? I think this is the current yield right? https://www.treasury.gov/resource-cente ... data=yield
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by parval »

sfmurph wrote: Fri Nov 05, 2021 4:01 pm
parval wrote: Fri Nov 05, 2021 3:03 pm Can I verify this trade with yall?

If I hit transmit here, I'd get $485.38 cash credit and owe $500 on 2024/12/19, is that right?

Image
You missed the multiplier. You'd get $48,538 cash credit and owe $50,000 on 2024/12/19.
right thanks!
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

parval wrote: Fri Nov 05, 2021 7:37 pm
comeinvest wrote: Fri Nov 05, 2021 5:20 pm
msun641 wrote: Fri Nov 05, 2021 10:10 am I filled 10000 at an implied 1.66% rate for 2026. Adam, were you able to catch it?
I don't mean to disappoint you, but the 5-year treasury is at 1.05%, which means you paid a high slippage margin. (Although I'm not sure what duration the 5-year point on the yield curve would be equivalent to. If someone has more insight, please let me know.)

And regardless of what rate precisely you got, I think borrowing at this maturity is not a good idea, if it is for portfolio leverage. The 5-year usually has high risk-adjusted returns, which means you pay other people's profit. But maybe you used the loan for other purposes like real estate.
Would you suggest 2-3 yr out boxes? Is there a good place to look for expected future yields? I think this is the current yield right? https://www.treasury.gov/resource-cente ... data=yield
If the purpose is to leverage a stocks and/or bonds portfolio, I personally would use between 3 and 12 months contracts, depending on the slope on the short end, unless the curve is flat and near zero like the past year or so. (And even then one could argue to use shorter lengths, as rates might go negative, but this is arguable.) If you think of it, if you use 2-year, 5-year, etc., loans, you are taking the opposite position of investors who uses 2-year, 5-year, etc., treasuries in their portfolios. Intermediate-term treasuries have historically had high risk-adjusted returns. In contrast to mortgage loans, the box loan is marked-to-market, which means in the beginning your annual financing cost is not only the yield to maturity, but you have to add the yield curve rolldown return that you pay to the counterparty based on the yield curve slope.

To top it off, the marked-to-marked value of your short box position would positively correlate with your equities - not good in case of a stock market crash.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by msun641 »

I'm not sure how much to be bothered by the real risk-adjusted return of the 5yr. What is it, like -2% or something? Moreover, I'm totally fine with an average nominal rate of 1.6% locked in over the next 5yrs. Less headache, more certainty. I will 100% be leveraged over the next 10-15 years of my life (early in the lifecycle).

Finally, it's $10,000. Well worth the lesson if I'm totally off-base. I'd love to hear more; it's not been entirely convincing so far.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by whodidntante »

msun641 wrote: Sat Nov 06, 2021 6:22 am I'm not sure how much to be bothered by the real risk-adjusted return of the 5yr. What is it, like -2% or something? Moreover, I'm totally fine with an average nominal rate of 1.6% locked in over the next 5yrs. Less headache, more certainty. I will 100% be leveraged over the next 10-15 years of my life (early in the lifecycle).

Finally, it's $10,000. Well worth the lesson if I'm totally off-base. I'd love to hear more; it's not been entirely convincing so far.
I agree it's a good deal. I think it is useful to compare to alternatives of 5+ years term. I can get a 1.49% seven-year auto loan from a local credit union, which would be a great rate if one were buying a car regardless. But that is impossible to scale and it only works if you would buy a car regardless. This morning I borrowed $5,000 for two years at 0% unsecured. While that is a fantastic deal and your example of 10 grand is attainable, it would not be realistic to scale that to large amounts of money. With box spread financing, the rate is good and the sky is the limit, at least for a seven-figure pleb like me.
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