Let's Talk SPX Box Spreads

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GeraniumLover
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Let's Talk SPX Box Spreads

Post by GeraniumLover »

There is a long thread here discussing selling SPX box spreads using Interactive Brokers. Since I don't use IBKR and have never bought or sold options, I did not think the idea was one that made sense for me. Then I read this summary from The Finance Buff, which really opened my eyes about what box spreads are all about (and how to implement them on Fidelity, which is my preferred broker): http://thefinancebuff.com/short-box-spr ... elity.html.

Because box spreads may be valuable to many Bogleheads who are not yet familiar with them, I thought it made sense to create a new introductory thread so that Bogleheads can more easily assess whether it is a technique they wish to consider for accomplishing their personal finance goals.

For those, like me, who are not familiar with box spreads, they appear to be a good low-risk solution to achieving two goals many Bogleheads appear to be seeking:

(1) How to get better returns than high-yield savings accounts, CDs, treasuries and money market funds. If that is what you are seeking, consider going long (buying) box spreads. According to http://boxtrades.com, you should be able to get about 1.1% for the next year and over 2% annually if you stretch beyond 2 years. You will also get long term capital gains treatment for 60% of your returns.

(2) How to get a low-interest, low-cost, no-documentation short-term loan. If that is what you are seeking, consider going short (selling) box spreads. According to http://boxtrades.com, you should be able to get about 1.1% APR for a one-year loan and a bit over 2% APR for 2-4.5 years. You will also get to deduct 60% of your loan cost analogous to interest as a long-term capital loss and 40% as a short-term capital loss. Note that you can also use this technique to raise cash as an alternative to selling appreciated assets and incurring capital gains.

To take advantage of this technique, you must:
  • Have a taxable margin brokerage account with the ability to trade options, along with sufficient marginable securities for your desired loan balance (if going short).
  • Be OK with maintaining the position until its expiry date.
  • Double and triple check the various parameters of your trade before submitting it.
Please note that I am just learning about box spreads myself, have never traded box spreads, and am a complete novice. I am hoping that more experienced Bogleheads will share their experiences and answer questions other novices may have about this useful technique.
:beer
Last edited by GeraniumLover on Sun Jun 19, 2022 9:00 pm, edited 3 times in total.
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Re: Let's Talk Box Spreads

Post by indexfundfan »

I opened box trades loans at Fidelity and Etrade successfully and withdrew the cash. I know some are using them as a savings vehicle.

Commissions per Box trade (4 legs)
Etrade $4.68 ($4.08 if you have >30 trades per quarter)
Fidelity $2.72
Last edited by indexfundfan on Mon Feb 21, 2022 1:43 pm, edited 1 time in total.
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Re: Let's Talk Box Spreads

Post by drk »

This all feels very circular:
  • You point to TFB
  • TFB points to ERN
  • ERN got the idea from a reader
  • That reader appears to have gotten the idea from the box-spreads thread (directly or indirectly)
It's a meme in the original sense of the word.

BTW, there are several examples of using Fidelity in that thread. I would recommend an update to the thread title rather than spinning off a separate one.
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Re: Let's Talk Box Spreads

Post by LadyGeek »

This thread is now in the Investing - Theory, News & General forum (general discussion).
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Re: Let's Talk Box Spreads

Post by German Expat »

I think this would be better covered in a wiki rather then starting a new (potentially long again) thread. In the main one it is hard to find instructions how to do it on the different brokers and information is there but spread out or you spend a lot of time reading the whole thing (maybe useful). But I am not sure if this is not a bit too exotic for most users. I am interested having the option but won't use it until I need money so might not need it any time soon.
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Re: Let's Talk Box Spreads

Post by GeraniumLover »

indexfundfan wrote: Mon Feb 21, 2022 11:29 am I opened box trades loans at Fidelity and Etrade successfully and withdrew the cash. I know some are using them as a savings vehicle.

Commissions per Box trade (4 legs)
Etrade $4.68 ($4.08 if you have >30 trades per quarter)
Fidelity $2.72
Thanks, indexfundfan, for this info. A few questions:

(a) When do you have to pay back the loans? What are the mechanics of doing so? Is it simply a matter of having sufficient cleared cash in your brokerage account when they come due?
(b) What did you need to do to qualify with each of the brokers to trade box spreads?
(c) Can you point me to an example of how to use E*Trade's website to sell a box spread?
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Re: Let's Talk Box Spreads

Post by learntoinvest123 »

I don't use box spreads, but I think these are the mechanics.

1) At expiry the amount you owe becomes a margin loan.
You will have to roll this into another box, which means there is an interest rate risk.
2) Box spread is a bull call spread, matched with a bear put spread ( it is simply selling 4 option legs, nothing fancy).
3) You need portfolio margin since you will be leveraging your portfolio heavily to borrow money. Portfolio margin allows you to borrow big sums at lower maintenance requirements.

The risks are
1) Don't write American style options. Only European style cash-settled on indexes.
2) Option pricing is not perfect, so legs may get mis-priced in high volatility conditions. This means your margin requirement could go out of wack and brokers may issue margin calls. So you should not leverage a big portion of your portfolio.
3) If you use the borrowed money to buy stocks and the markets crash and your loan is due, broker may not extend more margin for you to roll the money into a new box.
4) You may not be able to close the box early or may have to do it at a loss. The markets are not very liquid.

Bottom line, if you need to borrow a smallish percentage of your portfolio and are okay with interest rate risk, then this is truly is a low cost option to borrow money.
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Re: Let's Talk Box Spreads

Post by calwatch »

I discuss my experience with Ameritrade in the IBKR thread and have examples. When I get some time I'll paste them in. There are issues with phantom income - I had a phantom ~$6,000 gain on $140,000 of box loans: viewtopic.php?p=6503413#p6503413 which don't really affect me since it will get credited back at expiration, but could screw someone up if they had strict income limits for a deduction or needed to qualify for the earned income tax credit.

This is what I wrote - viewtopic.php?p=6241921#p6241921

Now that I know about it and successfully have executed it, I'm surprised more high net worth people don't use this as a strategy for cheap loans or to manage estate taxes. Perhaps the risk of blowing themselves up with an incorrect trade or the delay in execution time is scaring them off? A few use cases:
Instead of selling stocks or taking a margin loan to purchase real estate or personal items, sell boxes. To reduce interest rate risk and/or the risk of not being able to re-roll a large amount at once you could build a ladder of positions, over each quarter in the out years. You might want to also take a HELOC so that you could rapidly transfer money to meet a margin call if needed. Currently, on Ameritrade my maintenance margin for an account consisting of broad market stock and high yield corporate ETFs is about 13% of the "margin equity total", which appears to be roughly the market value minus the amount of the box. I suppose that, as I sell more boxes, the margin equity total would also deteriorate but I see no reason why you couldn't sell 50% or 60% of market value as boxes and take out the cash from the account.
A high net worth widow has highly appreciated stock she wants to pass on, but also has high expenses (like for a maid or personal assistance). Rather than sell the stock to pay for this (and realize capital gains), she sells boxes using the stock as collateral. When she dies the basis steps up and the heirs can either pay off the loan at expiration with their own cash and keep the stock with the higher basis, or sell the stock to pay the box. Either way capital gains taxes are avoided. Risk is the complexity of rolling over/selling boxes as needed and possible margin call if the stock is deemed too volatile or if a 2008 or 2020-like crisis occurs. Risk would be reduced if the highly appreciated stock above was a broad market ETF, since the cushion would be greater.
This also seems useful for bridge loans or to replace HELOCs, although the ease of using a HELOC and the relatively good rates make me not rushing to pay off a 2.24% loan with a 0.6% one.
Assuming tax laws stay the same 10-20 years from now I am thinking of using strategy 1 to purchase a retirement property. I could immediately get a HELOC afterward as contingency, probably using tax deferred funds to qualify. I could adjust my asset allocation in my tax deferred and Roth accounts to compensate so that my overall asset allocation is maintained as if I paid cash for the home, by moving them to a short term bond fund that would offset the implied box interest. Rather than realizing hundreds of thousands of capital gains at once if I sold and paid cash, I would be able to systematically reduce my stocks in a taxable account and use fewer boxes over time, to reduce risk.

So far the main risks I see are user complexity/execution errors (need to always use European index options and never anything else, botching the dates and/or strikes so that the position is not delta neutral), liquidation risk due to a bad algorithm (especially true with IBKR, although possible in any broker), markets in a financial crisis right as your boxes expire leading to high interest rates, getting antsy about boxes not getting filled on the roll and paying 8%+ margin interest while you wait, opaqueness of how box prices are determined, and this being inscrutable or hard to explain to heirs and anyone who might need to know about the account. Are there others I'm missing?


I took out a box to leverage into an ETF which expires in December 2022. I have another box expiring December 2023. Now that longer dated boxes are available I'm thinking of using these for my next house down payment, in lieu of selling stock or liquidating my growing stash of I Bonds. I would need to consolidate my taxable investments into one brokerage and stop my bonus chasing, but that seems easy to do. Even if box rates slightly exceeded my I Bond rate I would get some tax arbitrage and more importantly not give up the future capacity of the I Bonds to grow.
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Re: Let's Talk Box Spreads

Post by gougou »

I recommend that we always replace “Box Spread” with “SPX Box Spread”. SPX options are extremely liquid and they are European style (no early exercise risk). If you buy/sell box spreads on stocks then some of the short legs could be exercised early and blow up your account…
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Re: Let's Talk SPX Box Spreads

Post by samwise_fool »

One thing I haven't seen discussed as much is where the return premium over treasuries comes from. I.e. why doesn't everyone use box spreads over treasuries? Is it just solvency risk from the OCC? Liquidity risk from trading box spreads vs treasuries? Do treasuries have a lower return because of their privileged position as an asset for collateral and such?

It's interesting to think about what a OCC collapse would look like, though. Reading their margin requirements it seems like they can do a margin call of brokerages if things get too out of whack. It's tough to think about that *that* would look like.
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Re: Let's Talk Box Spreads

Post by indexfundfan »

GeraniumLover wrote: Tue Feb 22, 2022 5:31 pm
indexfundfan wrote: Mon Feb 21, 2022 11:29 am I opened box trades loans at Fidelity and Etrade successfully and withdrew the cash. I know some are using them as a savings vehicle.

Commissions per Box trade (4 legs)
Etrade $4.68 ($4.08 if you have >30 trades per quarter)
Fidelity $2.72
Thanks, indexfundfan, for this info. A few questions:

(a) When do you have to pay back the loans? What are the mechanics of doing so? Is it simply a matter of having sufficient cleared cash in your brokerage account when they come due?
(b) What did you need to do to qualify with each of the brokers to trade box spreads?
(c) Can you point me to an example of how to use E*Trade's website to sell a box spread?
On the expiry date, the "loan" is due. If you don't have a cash balance in the account, you will start to accrue margin interest. My plan is to have a cash balance by the morning of the options expiry to pay off the loan.

To trade box spreads, you need to have margin and be approved for options trading. There are different levels of options trading approval. I don't think you need to be approved for the highest level, though I applied and was approved for the highest options trading level. Someone mentioned the requirement for a portfolio margin account instead of the more typical Reg.T margin account. This is not true. You can trade box spreads with a Reg.T margin account.

I would take this opportunity to also clarify that you can never take a loan that is more than the equity in your brokerage account. For a Reg.T margin account, the maximum loan you can take is around 50% ~ 60% of the equity in the account. E.g. if your brokerage account value is $500k, the maximum you can withdraw is in the range of $250k (50%). With a portfolio margin, the max may go up to 85%, say $425k. In no instance can you ever get more than the $500k of equity in the account. Note that the loan amounts mentioned are the maximum amounts allowed and are not recommended since any market fall would immediately result in margin calls, and in the case of IB, automatic liquidation.

Trading box spread at Etrade is similar to that at Fidelity. There is nothing special about it at Etrade.
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Re: Let's Talk Box Spreads

Post by GeraniumLover »

gougou wrote: Wed Feb 23, 2022 3:24 am I recommend that we always replace “Box Spread” with “SPX Box Spread”. SPX options are extremely liquid and they are European style (no early exercise risk). If you buy/sell box spreads on stocks then some of the short legs could be exercised early and blow up your account…
Good idea. I changed the thread title accordingly.
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Re: Let's Talk Box Spreads

Post by GeraniumLover »

learntoinvest123 wrote: Tue Feb 22, 2022 7:44 pm 1) At expiry the amount you owe becomes a margin loan.
You will have to roll this into another box, which means there is an interest rate risk.
I assume, though, that if you have cash in your account when the box spread expires, the cash will be used instead of a margin loan being made. Also, if you do need to roll it into another box, you probably will still get a favorable rate compared to other alternatives available at that time.
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Re: Let's Talk Box Spreads

Post by GeraniumLover »

calwatch wrote: Wed Feb 23, 2022 3:01 am I discuss my experience with Ameritrade in the IBKR thread and have examples. When I get some time I'll paste them in. There are issues with phantom income - I had a phantom ~$6,000 gain on $140,000 of box loans: viewtopic.php?p=6503413#p6503413 which don't really affect me since it will get credited back at expiration, but could screw someone up if they had strict income limits for a deduction or needed to qualify for the earned income tax credit.

This is what I wrote - viewtopic.php?p=6241921#p6241921
...
I took out a box to leverage into an ETF which expires in December 2022. I have another box expiring December 2023. Now that longer dated boxes are available I'm thinking of using these for my next house down payment, in lieu of selling stock or liquidating my growing stash of I Bonds. I would need to consolidate my taxable investments into one brokerage and stop my bonus chasing, but that seems easy to do. Even if box rates slightly exceeded my I Bond rate I would get some tax arbitrage and more importantly not give up the future capacity of the I Bonds to grow.
Thanks, calwatch, for your very informative post. A quick question I have: when selling a box spread, do the proceeds settle immediately (i.e., are available for withdrawal same day) or does it take a couple of business days, like equities?
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Re: Let's Talk Box Spreads

Post by indexfundfan »

GeraniumLover wrote: Wed Feb 23, 2022 12:28 pm
calwatch wrote: Wed Feb 23, 2022 3:01 am I discuss my experience with Ameritrade in the IBKR thread and have examples. When I get some time I'll paste them in. There are issues with phantom income - I had a phantom ~$6,000 gain on $140,000 of box loans: viewtopic.php?p=6503413#p6503413 which don't really affect me since it will get credited back at expiration, but could screw someone up if they had strict income limits for a deduction or needed to qualify for the earned income tax credit.

This is what I wrote - viewtopic.php?p=6241921#p6241921
...
I took out a box to leverage into an ETF which expires in December 2022. I have another box expiring December 2023. Now that longer dated boxes are available I'm thinking of using these for my next house down payment, in lieu of selling stock or liquidating my growing stash of I Bonds. I would need to consolidate my taxable investments into one brokerage and stop my bonus chasing, but that seems easy to do. Even if box rates slightly exceeded my I Bond rate I would get some tax arbitrage and more importantly not give up the future capacity of the I Bonds to grow.
Thanks, calwatch, for your very informative post. A quick question I have: when selling a box spread, do the proceeds settle immediately (i.e., are available for withdrawal same day) or does it take a couple of business days, like equities?
Options settle next business day.
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Re: Let's Talk SPX Box Spreads

Post by coalcracker »

Is this possible at Vanguard? I don't really care if I use them, but my taxable brokerage is already there.
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Re: Let's Talk SPX Box Spreads

Post by calwatch »

Yes, you can use it at Vanguard if you can execute a complex option order like an iron condor. It does look like you have to call in though, which may not be ideal. https://www.reddit.com/r/options/commen ... _multileg/
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Re: Let's Talk SPX Box Spreads

Post by GeraniumLover »

I applied for Level 3 options trading (which I understand is needed to trade Box Spreads) at both Fidelity and E*Trade. Both only approved me for Level 2. I am following up with them to find out why. I am hoping I don't need to trade options speculating on the direction of stocks or indices just to build up "experience" before they will approve me for Level 3.
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Re: Let's Talk SPX Box Spreads

Post by indexfundfan »

GeraniumLover wrote: Sun Feb 27, 2022 7:39 pm I applied for Level 3 options trading (which I understand is needed to trade Box Spreads) at both Fidelity and E*Trade. Both only approved me for Level 2. I am following up with them to find out why. I am hoping I don't need to trade options speculating on the direction of stocks or indices just to build up "experience" before they will approve me for Level 3.
You probably need to show some experience before they will approve you for level 3.
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Re: Let's Talk Box Spreads

Post by Silly Wabbit »

GeraniumLover wrote: Wed Feb 23, 2022 11:19 am
learntoinvest123 wrote: Tue Feb 22, 2022 7:44 pm 1) At expiry the amount you owe becomes a margin loan.
You will have to roll this into another box, which means there is an interest rate risk.
I assume, though, that if you have cash in your account when the box spread expires, the cash will be used instead of a margin loan being made.
Yep, at expiry there's a debit against cash,and a negative cash balance means you're borrowing on margin.
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Re: Let's Talk SPX Box Spreads

Post by GeraniumLover »

indexfundfan wrote: Mon Feb 28, 2022 11:01 am You probably need to show some experience before they will approve you for level 3.
What low-risk strategies can I use to gain experience at Level 2? I don't really want to speculate as to whether individual stocks or indices are going to go up or down in any period of time.
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Re: Let's Talk SPX Box Spreads

Post by secondopinion »

indexfundfan wrote: Mon Feb 28, 2022 11:01 am
GeraniumLover wrote: Sun Feb 27, 2022 7:39 pm I applied for Level 3 options trading (which I understand is needed to trade Box Spreads) at both Fidelity and E*Trade. Both only approved me for Level 2. I am following up with them to find out why. I am hoping I don't need to trade options speculating on the direction of stocks or indices just to build up "experience" before they will approve me for Level 3.
You probably need to show some experience before they will approve you for level 3.
They might require it; I had 3 years of profitable experience when I got Vanguard to give me level 4 (they gave me level 1 to start even though I had margin). Robinhood gave level 3 to me no questions asked; of course, having a solid income and liquid net worth probably helps.

Neither brokerage help much with SPX box spreads; it is yet another reason I am moving elsewhere.
Last edited by secondopinion on Mon Feb 28, 2022 1:39 pm, edited 5 times in total.
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Re: Let's Talk SPX Box Spreads

Post by secondopinion »

GeraniumLover wrote: Mon Feb 28, 2022 12:34 pm
indexfundfan wrote: Mon Feb 28, 2022 11:01 am You probably need to show some experience before they will approve you for level 3.
What low-risk strategies can I use to gain experience at Level 2? I don't really want to speculate as to whether individual stocks or indices are going to go up or down in any period of time.
If you have a large enough portfolio, you can consider doing cash backed calls (or something to back it) or married puts (go for LEAP options if you want to reduce the risk over time). Also, covered calls are not bad. Cash-backed puts are not a favorite of mine; I preferred waiting until I got level 4 permissions.

But never do market orders.
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Re: Let's Talk SPX Box Spreads

Post by indexfundfan »

I guess for liability issues, the brokers are not going to approve you at an options level that is inconsistent with the options experience you disclose.
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Re: Let's Talk SPX Box Spreads

Post by GeraniumLover »

indexfundfan wrote: Mon Feb 28, 2022 1:24 pm I guess for liability issues, the brokers are not going to approve you at an options level that is inconsistent with the options experience you disclose.
I haven't heard back from them yet, but I understand this. I don't think the answer, though, is requiring me to dabble in riskier options trading as a prerequisite to being able to do a conservative trade.
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Re: Let's Talk SPX Box Spreads

Post by secondopinion »

Maybe this is addressed elsewhere, but do I need portfolio margin to use SPX Box Spreads or is standard margin sufficient? I am considering trying this at Fidelity, but I want to make sure it works. I am hoping that I can get up to 2x leverage without portfolio margin, but correct me if I am wrong. Also, what can portfolio margin give you in terms of leverage with these spreads?
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Re: Let's Talk SPX Box Spreads

Post by indexfundfan »

secondopinion wrote: Mon Feb 28, 2022 6:12 pm Maybe this is addressed elsewhere, but do I need portfolio margin to use SPX Box Spreads or is standard margin sufficient? I am considering trying this at Fidelity, but I want to make sure it works. I am hoping that I can get up to 2x leverage without portfolio margin, but correct me if I am wrong. Also, what can portfolio margin give you in terms of leverage with these spreads?
Have you seen my post upthread?

viewtopic.php?p=6532464#p6532464

Unlike at IB, it is hard to get portfolio margin at Fidelity.
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Re: Let's Talk SPX Box Spreads

Post by secondopinion »

indexfundfan wrote: Mon Feb 28, 2022 6:22 pm
secondopinion wrote: Mon Feb 28, 2022 6:12 pm Maybe this is addressed elsewhere, but do I need portfolio margin to use SPX Box Spreads or is standard margin sufficient? I am considering trying this at Fidelity, but I want to make sure it works. I am hoping that I can get up to 2x leverage without portfolio margin, but correct me if I am wrong. Also, what can portfolio margin give you in terms of leverage with these spreads?
Have you seen my post upthread?

viewtopic.php?p=6532464#p6532464

Unlike at IB, it is hard to get portfolio margin at Fidelity.
So it does permit 2x leverage on regular margin? That should be sufficient for me then since I am not planning to go crazy on leverage by any means.
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Re: Let's Talk SPX Box Spreads

Post by Silly Wabbit »

secondopinion wrote: Mon Feb 28, 2022 8:56 pm
indexfundfan wrote: Mon Feb 28, 2022 6:22 pm
secondopinion wrote: Mon Feb 28, 2022 6:12 pm Maybe this is addressed elsewhere, but do I need portfolio margin to use SPX Box Spreads or is standard margin sufficient? I am considering trying this at Fidelity, but I want to make sure it works. I am hoping that I can get up to 2x leverage without portfolio margin, but correct me if I am wrong. Also, what can portfolio margin give you in terms of leverage with these spreads?
Have you seen my post upthread?

viewtopic.php?p=6532464#p6532464

Unlike at IB, it is hard to get portfolio margin at Fidelity.
So it does permit 2x leverage on regular margin? That should be sufficient for me then since I am not planning to go crazy on leverage by any means.
Give fidelity's margin calculator a shot and report back. The FAQ is quite specific as well: https://www.fidelity.com/trading/faqs-margin
The margin requirement for credit spreads in nonretirement accounts is the lower of the difference in strike prices or the short option’s requirement as an uncovered position.
Sounds like fidelity will treat a box as 2 credit spreads.

Naked short requirement on an index is:
The higher of the following requirements:

Broad-based indexes (i.e., S&P 500):

20% of the underlying value, minus the out-of-the-money amount, plus the premium

15% of the underlying value, plus the premium

For $200, 4300-4500 box the requirement is:

Code: Select all

min(4500-4300, max(4400*.2-(4400-4300), 4400*.15+251))
=min(200, max(780, 911))
=200
In other words - your margin requirement is 100% of the box spread. This is Schwab's reg-t margin requirement as well.

2x leverage will be right at the edge of the margin requirement. Don't take my word for it though!
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Re: Let's Talk SPX Box Spreads

Post by GeraniumLover »

GeraniumLover wrote: Mon Feb 28, 2022 6:05 pm
indexfundfan wrote: Mon Feb 28, 2022 1:24 pm I guess for liability issues, the brokers are not going to approve you at an options level that is inconsistent with the options experience you disclose.
I haven't heard back from them yet, but I understand this. I don't think the answer, though, is requiring me to dabble in riskier options trading as a prerequisite to being able to do a conservative trade.
I spoke with Fidelity. They refused to say why I was only approved for Level 2. Said they were concerned if they explained the reason, I could game it. No appeal process. No way to do Box Spreads without Level 3. I hear TD Ameritrade allows Box Spreads with Level 2. Can anyone confirm?
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Re: Let's Talk SPX Box Spreads

Post by calwatch »

They granted me Level 3 with portfolio margin after passing their quiz. I did have 10+ years experience in options and had a six figure account though.
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Re: Let's Talk SPX Box Spreads

Post by GeraniumLover »

calwatch wrote: Mon Mar 07, 2022 9:34 pm They granted me Level 3 with portfolio margin after passing their quiz. I did have 10+ years experience in options and had a six figure account though.
Was that with Fidelity or TD Ameritrade? Fidelity did not mention a quiz. Is that separate from the forms they have you fill out? I have no option trading experience and have no interest in developing it through bets on stock or market direction. Makes no sense to me that they want you to first make risky trades before letting you make conservative trades.
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GeraniumLover
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Re: Let's Talk SPX Box Spreads

Post by GeraniumLover »

calwatch wrote: Mon Mar 07, 2022 9:34 pm They granted me Level 3 with portfolio margin after passing their quiz. I did have 10+ years experience in options and had a six figure account though.
Was that with Fidelity or TD Ameritrade? Fidelity did not mention a quiz. Is that separate from the forms they have you fill out when applying for option trading? I have no option trading experience and have no interest in developing it through bets on stock or market direction. Makes no sense to me that they want you to first make risky trades before letting you make conservative trades like SPY box spreads.
calwatch
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Re: Let's Talk SPX Box Spreads

Post by calwatch »

Ameritrade has a quiz to pass if you want portfolio margin. You can also get qualified by taking their courses and passing the quiz at the end.https://www.reddit.com/r/options/commen ... e_options/
secondopinion
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Re: Let's Talk SPX Box Spreads

Post by secondopinion »

GeraniumLover wrote: Mon Mar 07, 2022 9:43 pm
calwatch wrote: Mon Mar 07, 2022 9:34 pm They granted me Level 3 with portfolio margin after passing their quiz. I did have 10+ years experience in options and had a six figure account though.
Was that with Fidelity or TD Ameritrade? Fidelity did not mention a quiz. Is that separate from the forms they have you fill out when applying for option trading? I have no option trading experience and have no interest in developing it through bets on stock or market direction. Makes no sense to me that they want you to first make risky trades before letting you make conservative trades like SPY box spreads.
I got Level 4 permissions without portfolio margin by merely answering questions about experience and income/net worth. I had about 3-4 years of options experience from other brokerages.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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Re: Let's Talk Box Spreads

Post by yobery »

indexfundfan wrote: Mon Feb 21, 2022 11:29 am I opened box trades loans at Fidelity and Etrade successfully and withdrew the cash. I know some are using them as a savings vehicle.

Commissions per Box trade (4 legs)
Etrade $4.68 ($4.08 if you have >30 trades per quarter)
Fidelity $2.72
For Fidelity, what level of options did you need to successfully sell a box? I also was denied for options level 3, and it seems like they're being really stringent... there should be an easier way to do box spreads. But I guess they want you paying the higher Margin rates. Sigh.
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Re: Let's Talk Box Spreads

Post by secondopinion »

yobery wrote: Wed Mar 09, 2022 2:10 pm
indexfundfan wrote: Mon Feb 21, 2022 11:29 am I opened box trades loans at Fidelity and Etrade successfully and withdrew the cash. I know some are using them as a savings vehicle.

Commissions per Box trade (4 legs)
Etrade $4.68 ($4.08 if you have >30 trades per quarter)
Fidelity $2.72
For Fidelity, what level of options did you need to successfully sell a box? I also was denied for options level 3, and it seems like they're being really stringent... there should be an easier way to do box spreads. But I guess they want you paying the higher Margin rates. Sigh.
I think it is level 3. Level 4, if I am reading it right, has nothing above level 3 that applies to indexes.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Fractured
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Re: Let's Talk SPX Box Spreads

Post by Fractured »

Can this be done at Merill Edge?
Fractured
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Re: Let's Talk SPX Box Spreads

Post by Fractured »

Can this be done at Merill Edge?
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Re: Let's Talk Box Spreads

Post by indexfundfan »

yobery wrote: Wed Mar 09, 2022 2:10 pm
indexfundfan wrote: Mon Feb 21, 2022 11:29 am I opened box trades loans at Fidelity and Etrade successfully and withdrew the cash. I know some are using them as a savings vehicle.

Commissions per Box trade (4 legs)
Etrade $4.68 ($4.08 if you have >30 trades per quarter)
Fidelity $2.72
For Fidelity, what level of options did you need to successfully sell a box? I also was denied for options level 3, and it seems like they're being really stringent... there should be an easier way to do box spreads. But I guess they want you paying the higher Margin rates. Sigh.
I applied for and was approved for the highest level. So I'm not sure which level is needed.
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Re: Let's Talk Box Spreads

Post by GeraniumLover »

yobery wrote: Wed Mar 09, 2022 2:10 pm For Fidelity, what level of options did you need to successfully sell a box? I also was denied for options level 3, and it seems like they're being really stringent... there should be an easier way to do box spreads. But I guess they want you paying the higher Margin rates. Sigh.
I've been told Level 3 approval is needed at Fidelity.
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Re: Let's Talk SPX Box Spreads

Post by Lowlim »

I'm debating which broker to use for box spreads.

I was initially planning to use IBKR as their margin rates are very low, so if/when my boxes expire and convert to margin loans, the rate would still remain low. However, their reporting is not very intuitive. I'm struggling to find/create a report that gives all transactions, including dividend reinvesting, by date in one view. I can piece it all together, but it's just not as straight forward as "activity history" at Fidelity and Schwab. (If anyone knows how to do this, please chime in.) Also, though I'm planning to only borrow a small amount relative to my portfolio, I don't like how IBKR doesn't issue margin calls. So now I'm leaning toward Fidelity.

What brokerage do you prefer for box spreads?
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Re: Let's Talk SPX Box Spreads

Post by jshaffer740 »

I’ve had no problem using box spreads at Fidelity. It’s been a game changer, because I prefer Fidelity in almost every way. With box spreads at Fidelity, you can have your cake and eat it too.
40% VTI, 20% AVUV, 18% VEA, 10% AVDV, 6% VWO, 6% AVES (with 1.25x leverage)
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Re: Let's Talk SPX Box Spreads

Post by yobery »

jshaffer740 wrote: Fri Apr 01, 2022 3:36 pm I’ve had no problem using box spreads at Fidelity. It’s been a game changer, because I prefer Fidelity in almost every way. With box spreads at Fidelity, you can have your cake and eat it too.
You mean have your cake (fidelity's better service) and eat it too (box spreads), or did you mean something else?
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Re: Let's Talk SPX Box Spreads

Post by jshaffer740 »

yobery wrote: Fri Apr 01, 2022 3:37 pm
jshaffer740 wrote: Fri Apr 01, 2022 3:36 pm I’ve had no problem using box spreads at Fidelity. It’s been a game changer, because I prefer Fidelity in almost every way. With box spreads at Fidelity, you can have your cake and eat it too.
You mean have your cake (fidelity's better service) and eat it too (box spreads), or did you mean something else?
Exactly. Or the “eat it” could be “cheap leverage,” which is the main thing drawing most people to IBKR.
40% VTI, 20% AVUV, 18% VEA, 10% AVDV, 6% VWO, 6% AVES (with 1.25x leverage)
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Re: Let's Talk SPX Box Spreads

Post by calwatch »

I've used Ameritrade and have no issues with them.
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Re: Let's Talk SPX Box Spreads

Post by Lowlim »

Has anyone had any issues trading boxes on IBKR (Interactive Brokers)?
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Re: Let's Talk SPX Box Spreads

Post by sharukh »

Hi,

Can you please share how you filled the tax form to report the box trades.

I have started a new thread for talking about tax reporting of box spread. Please share your knowledge.

The tax date is getting close, so this is starting to get time sensitive.

viewtopic.php?f=10&t=374186&newpost=6596836

Thank you
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Re: Let's Talk SPX Box Spreads

Post by LadyGeek »

sharukh - You've already posted a similar request in a different thread. That should be sufficient. Please hold off additional requests and wait for someone to help you.
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Re: Let's Talk SPX Box Spreads

Post by GeraniumLover »

Lowlim wrote: Fri Apr 01, 2022 1:45 pm I'm debating which broker to use for box spreads.
...
What brokerage do you prefer for box spreads?
Has anyone used Tastyworks? How was the experience?
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