ZzXxAlpha wrote: ↑Tue Jan 04, 2022 11:37 pm
comeinvest wrote: ↑Tue Jan 04, 2022 11:00 pm
ZzXxAlpha wrote: ↑Mon Jan 03, 2022 11:06 am
ZzXxAlpha wrote: ↑Mon Jan 03, 2022 10:53 am
comeinvest wrote: ↑Mon Jan 03, 2022 4:29 am
That is the general idea.
@ZzXxAlpha : If your available cash to trade and cash to withdraw did not change much before vs. after the box trade, I think that is exactly the best outcome you could have expected, and the same that I get with IB. Boxes are used to replace broker's margin, not to create cash out of thin air. And you can only sell boxes if you have a margin account in the first place. (An exception is an IRA with limited margin, where selling boxes is useless as the margin requirement of the box is identical to the value of the box.)
Whether you first withdraw the cash (via broker's margin) and then sell the box, or the other way around, should not matter.
@ZzXxAlpha : you said your account is "standard taxable". Do you mean Reg T margin, or do you have portfolio margin? I generally recommend portfolio margin, because I hear that Reg T margin results in unnecessary complexity that is above my head. Schwab now seems to offer PM, you have to apply for it:
viewtopic.php?p=6398869#p6398869
My account currently does not have PM enabled, and I applied for it last week.
Looking over my balances details:
To Trade:
Cash+Cash Investments: $250k
Cash + Borrowing: 795k (Schwab's term for Margin buying power essentially)
To Withdraw:
Cash+Cash Investments: $250k
Borrowing: $0
Cash + Borrowing: $250k
It looks like I am unable to withdraw those proceeds. I currently carry $0 in margin balance. Would this be something that needs to be enabled through portfolio margin application?
It looks like Schwab is putting a 100k margin requirement on my 100k Box spread positions...... the right most column is Margin Requirement.
That would not be good. I personally don't know if Reg T vs PM makes a difference in your situation, as I don't use Reg T because I see no reason why I would bother with Reg T.
To my question "If you go to the Balances page for your account, it has "To Trade" and "To Withdraw" sections. Please let us know how those changed before/after your box spread trade" you said before: "Both indeed did not change by much before and after I executed the box spreads." Did you have cash available to withdraw before you sold the box? If not, then I conclude the problem is not the box itself. Did you have balance "To Trade" before the box spread? Do you have any now? If your margin requirement is the value of the box, then both "To Trade" and "To Withdraw" should have been reduced as you sold the box, in contradiction to what you said before.
Thanks comeinvest for your helpful discussion. I have a dozen or so other options positions (ratio spreads, strangles, covered calls,etc), and I did not have the cleanest tracking to the before/after as you commented. I observe that I had some money in the 'To Trade" portion before I executed the box spread.After I executed the spread - my "To Trade" numbers did not diminish by 100k as suggested by my screenshot.
Furthermore - I actually sold two box spreads, each having the same strikes, exp. dates. So it's essentially 2x$50k. I was able to buy back one of the box spreads today for essentially 0 loss, and I noticed that my Margin BP did not "increase" by 50k.
If the margin requirement of the box was indeed the value of the box, then I think when you sold/bought your box, your margin BP should have decreased / increased a lot
more than the value of the box - about 6-7 times as much, because the normal margin requirement of equities is ca. 15%. At least for portfolio margin (PM). For Reg T I think it would be 2 times. But surely it should have changed by more than 50k.
EDIT: I think the indicated margin requirements on your positions page are the actual margin requirements
with i.e. including the value of the cash that the box generated. (Cash itself has no margin requirement.) The margin requirement is about equal to your liability arising from the box. ** This is NOT the
excess margin available funds that you need to initiate the box trade. **
If my interpretation is right, it would be consistent with the language on Schwab's options margin page "Lesser of: Sum of component initial naked requirements and Maximum potential loss of strategy". Your potential loss (and in case of a box your assured loss) is the difference in strike prices * 100. (EDIT: I'm not 100% sure about Schwab's definition of "potential loss". IB seems to have a more strict "MAX(1.02 x cost to close, Long Call Strike – Short Call Strike)", where "cost to close" is not defined.)
Also, note that in your screenshot Schwab does recognize your legs as part of a "short box spread".
In summary, I think your "available to trade" and "available to withdraw" numbers probably did not materially change before vs after your box trade. Please verify if you have a chance.
If all that speculation from my side is correct, it is admittedly confusing, because IB seems to use a different language / terminology. When I right-click on my -1 SPX box, "Description", it says "margin impact of spread: [a very small number less than 0.1% the size of the box, in this case $112 for a box of about $200k]. They must be referring to the margin requirement
without i.e. excluding the value of the cash that the box generated, because surely I would not be able to sell a $200k box i.e. have a $200k liability with total equity of $112 in my account. Maybe we can say the "margin impact" is the
excess liquidity available funds I need initiate the box trade.
Once I had a short box in my IB IRA by mistake, and the margin impact showed a value about the size of the box, i.e. the box was useless.
EDIT 2: I doubt that the rightmost column is the margin requirement. Margin requirements cannot be negative, right? I suspect the rightmost column is your cost basis, the third from the left the current value, and the leftmost perhaps the margin requirement?
Also compare to the language of other brokers:
Tradestation:
https://www.tradestation.com/pricing/op ... uirements/
IB:
https://www.interactivebrokers.co.uk/en ... hp?f=42076 (note the "Short Box Spread" section on this page is only for Reg T)
Schwab seems to require the size of the spread as margin for a non-box spread, i.e. for a box (consisting of 2 vertical spreads) the margin requirement halves.
Tradestation seems to require about twice the maintenance margin for initial margin, if I read it right ("Net Premium + (Strike Price Long Call – Strike Price Short Call) x Contracts x Multiplier" for initial, "(Strike Price Long Call – Strike Price Short Call) x Contracts x Multiplier" for maintenance). Really confusing.
IB specifies only the margin requirement
without the value of the generated cash (the margin impact, i.e. very small numbers for boxes) on their page.
To me personally, from a systematic and consistent terminology point of view, it would make more sense to refer to the margin impact (e.g. the $112) as "margin requirement" to satisfy the equation "sum(margin req's of all positions) < account equity", as the (negative) value of the box and the (positive) value of the generated cash would net to zero i.e. no change in equity.
Caveat: I'm a beginner with options, trying to figure it out. More experienced options traders, please correct me if my terminology or interpretation is wrong.
ZzXxAlpha wrote: ↑Tue Jan 04, 2022 11:37 pm
This is all rather strange - and I did place one more call to Schwab Margins Rep who told me that Charles Schwab treat Box Spreads as if it's the summation of two credit spreads - thus 100k Margin requirement. Although.... when I commented that this is totally different than what their website calls out (screenshot below). He simply said something to the effect of "I regret that it may not be clear, but it's 100k"
I managed to rope my friend into doing this on his Schwab margin account. He has a fairly clean slate in terms of margin and open positions, and with his permission, I'll share update here. We plan to withdraw some money and incur a margin balance; Then execute a small Box spread position, and see if we are able to swap out the broker charged high margin interest, with low Box Spread effective interest.
I'll also execute this on my eTrade and IKBR account and see how it goes.
I think we have enough data points in this thread that boxes work as intended at ETrade and at IB. I'm still curious about Schwab. Please check your balances once PM (portfolio margin) is enabled on your account.