Box Spreads as Loans - Interactive Brokers IBKR - 2021

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

Post by comeinvest »

LazyOverthinker wrote: Wed Aug 10, 2022 1:30 pm I've been pouring over the part in the mHFEA thread where collateral (t-bills/FOPs) is discussed. KBG said:

"IB would love for you to keep your cash balance at zero in your non-IRA account. You can go into debit for a minute and get tagged a full day's securities margin interest (based on their securities stated "margin" rate)."

Admittedly not much to go off of, but it got me thinking why they wouldn't do what I described. For an intra-day loan caused by a dip, IBKR took on risk for you in that amount no matter how temporarily.
I think the comment that you referenced has no basis. There is no such thing as interest on an intra-day loan. Interest on cash is not compensation for margin risk, but reflects the risk-free rate based on prevailing risk-free interest rates. and is based on settled cash balances only.
LazyOverthinker
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by LazyOverthinker »

comeinvest wrote: Wed Aug 10, 2022 1:51 pm I think the comment that you referenced has no basis. There is no such thing as interest on an intra-day loan. Interest on cash is not compensation for margin risk, but reflects the risk-free rate based on prevailing risk-free interest rates. and is based on settled cash balances only.
Fair enough! I'll let you know if I ever notice anything. Any thoughts about the box spreads replacing treasuries comment?
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

LazyOverthinker wrote: Wed Aug 10, 2022 1:46 pm Speaking of box spreads and mHFEA: was there ever sufficient discussion about your idea to replace treasuries by going long a 5-year box spread, or did you come to a conclusion yourself? My main curiosity is the complication of having to manually calculate the "worth" of your box spread. But it doesn't seem too bad... if stocks tank and bonds soar, you'd just have to short a smaller 5-year box spread to actualize the gains from the main box spread position, right? That would regulate your portfolio balance as if you had treasuries and equities doing their uncorrelation business.

Wait... would that flexibility benefit you in a 2022 scenario? You could "defer" the cash consequences of rates rising by simply holding your main box spread, triggering less de-leveraging events on the way down from Oct 2021 to June 2022. Deferring interest-rate-risk seems too good to be true, I feel I must be misunderstanding the risk of box spreads.

I can certainly appreciate the simplicity of ZF contracts over being long/short multiple box spreads :shock:
I am still deliberating. I think it would be operationally easier in some ways, as the daily cash fluctuations would be eliminated or less, and there are less calendar roll events. I would probably start with a 5-year box i.e. the longest available expiration, and destroy the box when its remaining time to maturity is about 4 years or a bit less, so as to simulate the equivalent of a /ZF position on a rolling, approximate basis. On each rebalancing day, e.g. quarterly, I would account for the interest rate sensitivity of the box based on its size and then-current duration. The duration should be equal to its remaining time to maturity, as there are no coupon payments. I would add the dollar duration of the box to that of my /ZF position. I would not completely replace the /ZF futures, but leave some /ZF (or micro treasury futures or ETFs) for rebalancing as transaction cost is much less with futures.
To answer your last question, the cash flows of the box are not marked to market, but the value of the box for NAV calcs and margining purposes is still marked to market. So you would probably do the same kind of deleveraging based on your investment plan that you would do with futures.
LazyOverthinker
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by LazyOverthinker »

comeinvest wrote: Thu Aug 11, 2022 12:11 am To answer your last question, the cash flows of the box are not marked to market, but the value of the box for NAV calcs and margining purposes is still marked to market. So you would probably do the same kind of deleveraging based on your investment plan that you would do with futures.
Ah of course, I've only seen the tiny NAV movements that my 3-month box spreads make. It seems very possible to go forward with the idea if you're comfortable with the operational challenges.

Beyond that, I'd be worried about liquidity. I can tolerate getting less-than-ideal rates to finance the 60% extra in my 160% equity position, but you'd need to fight for consistently good rates to harvest the "box spread premium" over treasuries. It could get tricky at a certain net worth, but you're already mentioning you don't plan to do this for the full treasury position so that's good.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

LazyOverthinker wrote: Thu Aug 11, 2022 12:56 am
comeinvest wrote: Thu Aug 11, 2022 12:11 am To answer your last question, the cash flows of the box are not marked to market, but the value of the box for NAV calcs and margining purposes is still marked to market. So you would probably do the same kind of deleveraging based on your investment plan that you would do with futures.
Ah of course, I've only seen the tiny NAV movements that my 3-month box spreads make. It seems very possible to go forward with the idea if you're comfortable with the operational challenges.

Beyond that, I'd be worried about liquidity. I can tolerate getting less-than-ideal rates to finance the 60% extra in my 160% equity position, but you'd need to fight for consistently good rates to harvest the "box spread premium" over treasuries. It could get tricky at a certain net worth, but you're already mentioning you don't plan to do this for the full treasury position so that's good.
I don't think liquidity will be a problem. If you go to boxtrades.com you see very large trades like $50 mil. and larger all the time. With only 1 SPX box you can borrow or invest 1/2 to 1 million if you use the lowest and the highest strike prices. You are right though, something to think about and maybe further investigate how the effective filled bid/ask spread depends on the size.
LazyOverthinker
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by LazyOverthinker »

comeinvest wrote: Thu Aug 11, 2022 1:52 am I don't think liquidity will be a problem. If you go to boxtrades.com you see very large trades like $50 mil. and larger all the time. With only 1 SPX box you can borrow or invest 1/2 to 1 million if you use the lowest and the highest strike prices. You are right though, something to think about and maybe further investigate how the effective filled bid/ask spread depends on the size.
Thinking about it more, you wouldn't lose any value waiting for an ideal box-spread if you were holding an equivalent amount of ZF the whole time. Even if it took a month to get a good fill, you'd have been holding ZF anyway, and can then sell the equivalent amount of ZF that the box-spread now replaces.

Plus, as long as you're not replacing too much of your ZF position with the box spread, you could wait to fund it with a 3-month short box spread after it fills. Definitely sounding more and more doable for, say, 1/4 of the treasury position

The last consideration is taxes. I don't know how a long box-spread is taxed, but if it's as ordinary income then treasury contracts may get another leg-up by getting partial LTCG treatment
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

LazyOverthinker wrote: Thu Aug 11, 2022 9:40 am The last consideration is taxes. I don't know how a long box-spread is taxed, but if it's as ordinary income then treasury contracts may get another leg-up by getting partial LTCG treatment
Taxes are the same for futures and box spreads. Both are marked to market for tax purposes at the end of each calendar year, and both are taxed at 60/40 LT/ST gains.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

LazyOverthinker wrote: Thu Aug 11, 2022 9:40 am
comeinvest wrote: Thu Aug 11, 2022 1:52 am I don't think liquidity will be a problem. If you go to boxtrades.com you see very large trades like $50 mil. and larger all the time. With only 1 SPX box you can borrow or invest 1/2 to 1 million if you use the lowest and the highest strike prices. You are right though, something to think about and maybe further investigate how the effective filled bid/ask spread depends on the size.
Thinking about it more, you wouldn't lose any value waiting for an ideal box-spread if you were holding an equivalent amount of ZF the whole time. Even if it took a month to get a good fill, you'd have been holding ZF anyway, and can then sell the equivalent amount of ZF that the box-spread now replaces.

Plus, as long as you're not replacing too much of your ZF position with the box spread, you could wait to fund it with a 3-month short box spread after it fills. Definitely sounding more and more doable for, say, 1/4 of the treasury position

The last consideration is taxes. I don't know how a long box-spread is taxed, but if it's as ordinary income then treasury contracts may get another leg-up by getting partial LTCG treatment
Some of the last trades of the Dec 2027 box per boxtrades.com were at 3.63% and 3.59% on 07/18 and 07/19. I think for comparison you would have to look up a treasury bond of the same duration, or better look up the yield of the zero coupon curve at that maturity. I don't have time to do that or to locate appropriate data sources. But the 5-year CMT rates were at 3.06% and 3.14% on those dates, and the entire 5-10 year maturity range had negative slope, so the spread to treasuries was higher then 0.5%. I'm not sure if my math makes sense, but it seems like a good deal for the box spread. The 5-year boxes seem to be thinly traded, and I'm not sure how that would translate to effective filled buy/sell spreads. If you were to implement a strategy similar to the one that I suggested, buying the longest available maturity and letting it roll down to a ca. 1 year shorter maturity, you would incur the effective buy/sell spread once a year. You would also incur trading cost i.e. the roll spread on a quarterly basis or so on the short-term box that you use to finance the 5-year box. Putting everything together, perhaps the effective financing rate is close to the one if you were to use /ZF futures. Although for a fair comparison you have to subtract the commissions and bid/ask spread of the quarterly roll of the futures.
You might lower trading cost by buying 5-year boxes and selling when they have a remaining maturity of 2 or 3 years, on a laddered basis. Just be sure to have consistent duration exposure with the strategy and it should be fine.
LazyOverthinker
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by LazyOverthinker »

comeinvest wrote: Thu Aug 11, 2022 11:47 am Some of the last trades of the Dec 2027 box per boxtrades.com were at 3.63% and 3.59% on 07/18 and 07/19.
...
But the 5-year CMT rates were at 3.06% and 3.14% on those dates, and the entire 5-10 year maturity range had negative slope, so the spread to treasuries was higher then 0.5%. I'm not sure if my math makes sense, but it seems like a good deal for the box spread. The 5-year boxes seem to be thinly traded, and I'm not sure how that would translate to effective filled buy/sell spreads.
That 0.5% is nothing to sneeze at! But it looks like the 3-month box spreads have also adopted that 0.5%, which you mentioned could happen in your original post. If you compare 3-month spreads to 2-year spreads @ 11/24/2021, the carry was 0.81%~. Meanwhile, the carry for treasuries of the same duration was 0.59%~. But look at the same box spread durations that filled yesterday @ 8/10/22, and the box-spread carry is 0.57% compared to the treasury carry of 0.61%.

My guess is that retail investors behaviorally don't want to lend long-term money for as low as quantitative-easing allowed 2-year treasuries to fall (0.65%), but then get less picky lending long-term money at the currently respectable rates.

Still, like you said, box spreads win by avoiding the implied 0.2-0.3% above risk-free financing cost of ZF contracts.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

LazyOverthinker wrote: Thu Aug 11, 2022 4:44 pm
comeinvest wrote: Thu Aug 11, 2022 11:47 am Some of the last trades of the Dec 2027 box per boxtrades.com were at 3.63% and 3.59% on 07/18 and 07/19.
...
But the 5-year CMT rates were at 3.06% and 3.14% on those dates, and the entire 5-10 year maturity range had negative slope, so the spread to treasuries was higher then 0.5%. I'm not sure if my math makes sense, but it seems like a good deal for the box spread. The 5-year boxes seem to be thinly traded, and I'm not sure how that would translate to effective filled buy/sell spreads.
That 0.5% is nothing to sneeze at! But it looks like the 3-month box spreads have also adopted that 0.5%, which you mentioned could happen in your original post. If you compare 3-month spreads to 2-year spreads @ 11/24/2021, the carry was 0.81%~. Meanwhile, the carry for treasuries of the same duration was 0.59%~. But look at the same box spread durations that filled yesterday @ 8/10/22, and the box-spread carry is 0.57% compared to the treasury carry of 0.61%.

My guess is that retail investors behaviorally don't want to lend long-term money for as low as quantitative-easing allowed 2-year treasuries to fall (0.65%), but then get less picky lending long-term money at the currently respectable rates.

Still, like you said, box spreads win by avoiding the implied 0.2-0.3% above risk-free financing cost of ZF contracts.
Based on your observations, there is some fluctuation, but the carry would be nearly the same on average.
If true, then options would be preferable to ITT, as the ca. 0.2% - 0.3% implied financing spread would go away. But you also have to compare the trading cost. For rolling treasury futures quarterly I think all-in trading cost (commissions plus bid/ask spread) was less than 0.05% p.a. for the more liquid treasury futures last time I checked, if I remember right. Some of my experiments with options with short expirations hinted at estimated all-in trading cost of ca. 0.1% - 0.15% p.a. (commissions plus effective realized buy/sell spreads). I didn't do any thorough testing yet, so these are very rough numbers. But I see the potential for about 0.15% - 0.2% p.a. outperformance based on notional treasury or interest rate exposure.
sometalk
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by sometalk »

Have folks here sold their box position (bought back the box) before expiry on IBKR? I am assuming it is pretty much the reverse of selling the box; put in a buy order with a debit transaction? Anything I should be aware of?
bling
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by bling »

sometalk wrote: Sun Aug 14, 2022 7:00 am Have folks here sold their box position (bought back the box) before expiry on IBKR? I am assuming it is pretty much the reverse of selling the box; put in a buy order with a debit transaction? Anything I should be aware of?
on this tangent, anyone lowering/removing leverage altogether?

i know it's still less than inflation, but at almost 4% it's starting to get "expensive".
muffins14
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by muffins14 »

bling wrote: Sun Aug 14, 2022 11:42 am
sometalk wrote: Sun Aug 14, 2022 7:00 am Have folks here sold their box position (bought back the box) before expiry on IBKR? I am assuming it is pretty much the reverse of selling the box; put in a buy order with a debit transaction? Anything I should be aware of?
on this tangent, anyone lowering/removing leverage altogether?

i know it's still less than inflation, but at almost 4% it's starting to get "expensive".


I’m planning to slowly reduce my margin from 200k to 0 over the next 3-4 years.

I’m OK with the 3.33% at IBKR or 3.7% at fidelity because I’ll deduct the margin interest at tax time, meaning it’s really like 1.67-1.85% for me after-tax. Not too bad
35% VTI, 25% AVUV, 15% IXUS, 15% AVDV, 10% VWO
sometalk
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by sometalk »

bling wrote: Sun Aug 14, 2022 11:42 am
sometalk wrote: Sun Aug 14, 2022 7:00 am Have folks here sold their box position (bought back the box) before expiry on IBKR? I am assuming it is pretty much the reverse of selling the box; put in a buy order with a debit transaction? Anything I should be aware of?
on this tangent, anyone lowering/removing leverage altogether?

i know it's still less than inflation, but at almost 4% it's starting to get "expensive".
if i close my box, i should technically be able to do so with a gain. Don't particularly have a need for leverage right now, and as you pointed out, 4% is a bit too steep for me.
Tributary9405
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Tributary9405 »

I would like some help in selling box spreads in ibkr because it seems that I never able to trade one in my paper account.
I am trying to sell a box on 16 Dec 2022. As seen from the image, there were trades with around 3.2% interest rate. However, I can't even get my order filled with interest rate 3.49% for ages as shown below. I am from Hong Kong so the SPX option is at 15 Dec 2022 (probably due to timezone). I have been trying for a few days and I can't get my order filled with much higher rate. I really hope to get some help from you guys. It's so frustrating!
Image
Image
Boxtrades.com screenshot: https://i.postimg.cc/66cPGsb6/Screensho ... -24-46.png
My IBKR Order: https://i.postimg.cc/tgH0N339/Screensho ... -28-22.png
Last edited by Tributary9405 on Fri Aug 19, 2022 7:30 pm, edited 3 times in total.
nalor511
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by nalor511 »

Tributary9405 wrote: Fri Aug 19, 2022 10:29 am I would like some help in selling box spreads in ibkr because it seems that I never able to trade one in my paper account.
I am trying to sell a box on 16 Dec 2022. As seen from the image, there were trades with around 3.2% interest rate. However, I can't even get my order filled with interest rate 3.49% for ages as shown below. I am from Hong Kong so the SPX option is at 15 Dec 2022 (probably due to timezone). I have been trying for a few days and I can't get my order filled with much higher rate. I really hope to get some help from you guys. It's so frustrating!
Image
Image
You're loaning money? Then your price is likely too high. If you see trades around 3.2% on https://www.boxtrades.com/SPX/16DEC22 , that's the price you should likely be shooting for. I don't know where you got 3.49%. Alternately, go check out the 3mo treasury rate https://www.wsj.com/market-data/quotes/ ... MUBMUSD03M which is around 2.67%, and add 0.35-0.45%, which is 3.02-3.12%. I think if you lower your price, you'll get a fill
Tributary9405
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Tributary9405 »

nalor511 wrote: Fri Aug 19, 2022 11:46 am
Tributary9405 wrote: Fri Aug 19, 2022 10:29 am I would like some help in selling box spreads in ibkr because it seems that I never able to trade one in my paper account.
I am trying to sell a box on 16 Dec 2022. As seen from the image, there were trades with around 3.2% interest rate. However, I can't even get my order filled with interest rate 3.49% for ages as shown below. I am from Hong Kong so the SPX option is at 15 Dec 2022 (probably due to timezone). I have been trying for a few days and I can't get my order filled with much higher rate. I really hope to get some help from you guys. It's so frustrating!
Image
Image
You're loaning money? Then your price is likely too high. If you see trades around 3.2% on https://www.boxtrades.com/SPX/16DEC22 , that's the price you should likely be shooting for. I don't know where you got 3.49%. Alternately, go check out the 3mo treasury rate https://www.wsj.com/market-data/quotes/ ... MUBMUSD03M which is around 2.67%, and add 0.35-0.45%, which is 3.02-3.12%. I think if you lower your price, you'll get a fill
No. I am actually selling the box to borrow money. I am aware of the 3mo treasury rate as wells as the price in boxtrades. So what I mean is I should be able to borrow money at around 3.2% but I can't even get my order to be filled at 3.5%. So I wonder what's wrong.
nalor511
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by nalor511 »

Tributary9405 wrote: Fri Aug 19, 2022 7:22 pm
nalor511 wrote: Fri Aug 19, 2022 11:46 am
Tributary9405 wrote: Fri Aug 19, 2022 10:29 am I would like some help in selling box spreads in ibkr because it seems that I never able to trade one in my paper account.
I am trying to sell a box on 16 Dec 2022. As seen from the image, there were trades with around 3.2% interest rate. However, I can't even get my order filled with interest rate 3.49% for ages as shown below. I am from Hong Kong so the SPX option is at 15 Dec 2022 (probably due to timezone). I have been trying for a few days and I can't get my order filled with much higher rate. I really hope to get some help from you guys. It's so frustrating!
Image
Image
You're loaning money? Then your price is likely too high. If you see trades around 3.2% on https://www.boxtrades.com/SPX/16DEC22 , that's the price you should likely be shooting for. I don't know where you got 3.49%. Alternately, go check out the 3mo treasury rate https://www.wsj.com/market-data/quotes/ ... MUBMUSD03M which is around 2.67%, and add 0.35-0.45%, which is 3.02-3.12%. I think if you lower your price, you'll get a fill
No. I am actually selling the box to borrow money. I am aware of the 3mo treasury rate as wells as the price in boxtrades. So what I mean is I should be able to borrow money at around 3.2% but I can't even get my order to be filled at 3.5%. So I wonder what's wrong.
Boxes are funny/squiggly. I've had boxes at a price (say 3%) not fill, and then a few minutes later put in a box for a lower price (borrowing) and had it fill immediately. I find that my orders that don't fill immediately, tend not to fill for awhile. But if I put in an order during market open hours, I usually have better luck. You're looking at a 4 month duration, which doesn't exactly correspond to either 3mo or 6mo rates, so, there's that. You can look and see what an actual dec22 treasury is selling for on the secondary market, and use that as your guide
richardglm
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by richardglm »

deleted
Last edited by richardglm on Tue Aug 23, 2022 5:14 am, edited 1 time in total.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

nalor511 wrote: Sat Aug 20, 2022 12:23 pm
Tributary9405 wrote: Fri Aug 19, 2022 7:22 pm
nalor511 wrote: Fri Aug 19, 2022 11:46 am
Tributary9405 wrote: Fri Aug 19, 2022 10:29 am I would like some help in selling box spreads in ibkr because it seems that I never able to trade one in my paper account.
I am trying to sell a box on 16 Dec 2022. As seen from the image, there were trades with around 3.2% interest rate. However, I can't even get my order filled with interest rate 3.49% for ages as shown below. I am from Hong Kong so the SPX option is at 15 Dec 2022 (probably due to timezone). I have been trying for a few days and I can't get my order filled with much higher rate. I really hope to get some help from you guys. It's so frustrating!
Image
Image
You're loaning money? Then your price is likely too high. If you see trades around 3.2% on https://www.boxtrades.com/SPX/16DEC22 , that's the price you should likely be shooting for. I don't know where you got 3.49%. Alternately, go check out the 3mo treasury rate https://www.wsj.com/market-data/quotes/ ... MUBMUSD03M which is around 2.67%, and add 0.35-0.45%, which is 3.02-3.12%. I think if you lower your price, you'll get a fill
No. I am actually selling the box to borrow money. I am aware of the 3mo treasury rate as wells as the price in boxtrades. So what I mean is I should be able to borrow money at around 3.2% but I can't even get my order to be filled at 3.5%. So I wonder what's wrong.
Boxes are funny/squiggly. I've had boxes at a price (say 3%) not fill, and then a few minutes later put in a box for a lower price (borrowing) and had it fill immediately. I find that my orders that don't fill immediately, tend not to fill for awhile. But if I put in an order during market open hours, I usually have better luck. You're looking at a 4 month duration, which doesn't exactly correspond to either 3mo or 6mo rates, so, there's that. You can look and see what an actual dec22 treasury is selling for on the secondary market, and use that as your guide
You can look up the treasury rates at https://www.wsj.com/market-data/bonds/treasuries . Current yield is 2.4% :
12/15/2022 1.625 99.2360 99.2420 0.0120 2.400
At the same time, the treasury bill is 2.669% :
12/15/2022 2.620 2.610 +0.018 2.669

I don't understand these yield differences between the bills and the notes and bonds. Kevin in the other box spread thread made a similar observation, which is the opposite of what is shown in the diagram in viewtopic.php?p=6829477#p6829477
Other articles that I read said the bills have the lowest yields because they are the most liquid. I didn't look at trading volume data, maybe they would explain part of the conundrum.

The last few box trades were between 3.1% and 3.26%.
nalor511
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by nalor511 »

What feels like a stupid question regarding box spread maturity date - say I'm holding SPX box spreads with a 9/16/2022 maturity, that I would like to "replace" with a new box spread with a new future maturity date? I do not want to pay my broker's margin rates, if it can be avoided.

The obvious answer is during market hours on 9/16/2022, but I don't know how settlement may come into play to change that. Thanks in advance for any insight
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by indexfundfan »

nalor511 wrote: Tue Aug 30, 2022 2:49 pm What feels like a stupid question regarding box spread maturity date - say I'm holding SPX box spreads with a 9/16/2022 maturity, that I would like to "replace" with a new box spread with a new future maturity date? I do not want to pay my broker's margin rates, if it can be avoided.

The obvious answer is during market hours on 9/16/2022, but I don't know how settlement may come into play to change that. Thanks in advance for any insight
Box spreads are just options. They settle on T+1. So on 9/16, just do your "replacement" box trade and it will match up with the maturing one with no margin charge.
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nalor511
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by nalor511 »

indexfundfan wrote: Tue Aug 30, 2022 3:43 pm
nalor511 wrote: Tue Aug 30, 2022 2:49 pm What feels like a stupid question regarding box spread maturity date - say I'm holding SPX box spreads with a 9/16/2022 maturity, that I would like to "replace" with a new box spread with a new future maturity date? I do not want to pay my broker's margin rates, if it can be avoided.

The obvious answer is during market hours on 9/16/2022, but I don't know how settlement may come into play to change that. Thanks in advance for any insight
Box spreads are just options. They settle on T+1. So on 9/16, just do your "replacement" box trade and it will match up with the maturing one with no margin charge.
Thank you, that's what logic told me to do, but you never know with these things so I wanted to be sure :sharebeer
boxspreads
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by boxspreads »

@adamhg, I think I found a minor bug on the website.

The commission is calculate per leg of the trade, but does not reflect changes to the quantity field.
adamhg
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

boxspreads wrote: Wed Aug 31, 2022 11:49 am @adamhg, I think I found a minor bug on the website.

The commission is calculate per leg of the trade, but does not reflect changes to the quantity field.
Fixed! Good find. Only affected the displayed total and not the rate/yield thankfully
thinkofanamefast
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by thinkofanamefast »

Funnily enough, I came across this article today that has some additional points. https://thefinancebuff.com/long-box-spr ... elity.html I wonder if the author is a poster here :)
[/quote]

You happen to notice the comments under that article? One guy is claiming box trades aren't subject to 60/40 Capital Gains treatment even if over a year. Says they are ordinary income, and provided a link to a law school article that was a little beyond me. Says a Long Box is a "conversion transaction" under IRS rules.

He claims the OCCs position on it is incorrect...so he's either a kook or smarter than a lot of people.
petulant
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by petulant »

thinkofanamefast wrote: Wed Sep 07, 2022 7:45 am
Funnily enough, I came across this article today that has some additional points. https://thefinancebuff.com/long-box-spr ... elity.html I wonder if the author is a poster here :)
You happen to notice the comments under that article? One guy is claiming box trades aren't subject to 60/40 Capital Gains treatment even if over a year. Says they are ordinary income, and provided a link to a law school article that was a little beyond me. Says a Long Box is a "conversion transaction" under IRS rules.

He claims the OCCs position on it is incorrect...so he's either a kook or smarter than a lot of people.
I think he's probably right. The reason OCC would be marketing these is because it's in vogue to convert ordinary income to capital gains if available...interest rate futures did so but they're exposed to risk with respect to interest rate movements. Here the elimination of principal risk seems to bring it under the text of 1258. I'll be interested to learn more but there's "there there."

Also it's funny you bring up the author of the article possibly being a poster here--I would suggest that there's a cottage industry of bloggers that just take insights developed for free here on BH, add sprinkles, and convert them to an income-producing blog article. They're fencing in the commons so to speak. It's not a positive thing in my mind.
thinkofanamefast
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by thinkofanamefast »

I had a feeling that elimination of risk would prevent Cap Gains treatment, just based on logic and not a reading of that article. Just because box trades are under the category of options, and over a year long if you choose, doesn't seem a good enough reason to allow cap gains for a no risk investment, like a 2 year zero coupon bond with imputed interest each year, that is ordinary.

Also, just want to point out that the quote about the guy possibly posting here was actually your quote from a long time ago - but at least you agreed with that point :)
h2cycle
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by h2cycle »

What about a gain on a short box spread?
IE, shorted a box to get a 2% loan, but MTM shows a gain due to rising interest rates.
Would it make sense to that it would need to be converted to ordinary income or not?
LazyOverthinker
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by LazyOverthinker »

Can anyone help me understand why IBKR says I'll be receiving $98,545 credit even though my limit price for this 1000 spread box is -984.85? Boxtrades.com and my previous experience said I should be receiving $98,485 credit... it's a pretty significance difference and would explain why I'm not getting a fill

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

Post by comeinvest »

LazyOverthinker wrote: Mon Nov 14, 2022 1:02 pm Can anyone help me understand why IBKR says I'll be receiving $98,545 credit even though my limit price for this 1000 spread box is -984.85? Boxtrades.com and my previous experience said I should be receiving $98,485 credit... it's a pretty significance difference and would explain why I'm not getting a fill
It's just an estimate. They assume you will get a small price improvement, but they were wrong. Let us know what price you got filled. I think most box trades are shared in the other box trades thread.
reformed.trader
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by reformed.trader »

For anyone who has crossed over year end, can you tell me how complicated filing taxes are with box spreads? Must I keep track of unrealized p&l (what I assume I will be paying taxes on) at year end 2022 for my 2023 taxes(when I pay taxes on realized gains/losses)? Or will be broker automatically do this for me? Also, will all this be done under Section 1256? Thank you!
LazyOverthinker
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by LazyOverthinker »

comeinvest wrote: Mon Nov 14, 2022 3:22 pm
LazyOverthinker wrote: Mon Nov 14, 2022 1:02 pm Can anyone help me understand why IBKR says I'll be receiving $98,545 credit even though my limit price for this 1000 spread box is -984.85? Boxtrades.com and my previous experience said I should be receiving $98,485 credit... it's a pretty significance difference and would explain why I'm not getting a fill
It's just an estimate. They assume you will get a small price improvement, but they were wrong. Let us know what price you got filled. I think most box trades are shared in the other box trades thread.
I see, that seems a tad disingenuous of them... it took 3-4 days for this to fill at my limit price of -984.85, which boxtrades.com says is a 4.75%~ rate as of today
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

LazyOverthinker wrote: Fri Nov 18, 2022 4:05 pm
comeinvest wrote: Mon Nov 14, 2022 3:22 pm
LazyOverthinker wrote: Mon Nov 14, 2022 1:02 pm Can anyone help me understand why IBKR says I'll be receiving $98,545 credit even though my limit price for this 1000 spread box is -984.85? Boxtrades.com and my previous experience said I should be receiving $98,485 credit... it's a pretty significance difference and would explain why I'm not getting a fill
It's just an estimate. They assume you will get a small price improvement, but they were wrong. Let us know what price you got filled. I think most box trades are shared in the other box trades thread.
I see, that seems a tad disingenuous of them... it took 3-4 days for this to fill at my limit price of -984.85, which boxtrades.com says is a 4.75%~ rate as of today
My calculator says you got 4.79%. Mar 16 T-bills are at 4.38%. I think you got a decent fill.
On 11/09 I sold a Mar 31 $90k spread for 4.72% when T-bills were at 4.35%.
Today I sold a Mar 31 $9k spread for 5.21%. I think I got the bad rate because of the low dollar amount and because it filled immediately with price improvement as I didn't have time to calculate limit prices, and also because the $0.05 minimum increment for options makes it hard to target a specific implied rate. It may be worth looking into XSP (not SPX) options, the mini options, for small box trades.
LazyOverthinker
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by LazyOverthinker »

comeinvest wrote: Fri Nov 18, 2022 6:37 pm
LazyOverthinker wrote: Fri Nov 18, 2022 4:05 pm
comeinvest wrote: Mon Nov 14, 2022 3:22 pm
LazyOverthinker wrote: Mon Nov 14, 2022 1:02 pm Can anyone help me understand why IBKR says I'll be receiving $98,545 credit even though my limit price for this 1000 spread box is -984.85? Boxtrades.com and my previous experience said I should be receiving $98,485 credit... it's a pretty significance difference and would explain why I'm not getting a fill
It's just an estimate. They assume you will get a small price improvement, but they were wrong. Let us know what price you got filled. I think most box trades are shared in the other box trades thread.
I see, that seems a tad disingenuous of them... it took 3-4 days for this to fill at my limit price of -984.85, which boxtrades.com says is a 4.75%~ rate as of today
My calculator says you got 4.79%. Mar 16 T-bills are at 4.38%. I think you got a decent fill.
On 11/09 I sold a Mar 31 $90k spread for 4.72% when T-bills were at 4.35%.
Today I sold a Mar 31 $9k spread for 5.21%. I think I got the bad rate because of the low dollar amount and because it filled immediately with price improvement as I didn't have time to calculate limit prices, and also because the $0.05 minimum increment for options makes it hard to target a specific implied rate. It may be worth looking into XSP (not SPX) options, the mini options, for small box trades.
I appreciate the confirmation. It certainly doesn't feel like a good fill - I have to keep checking that IBKR is charging 5.33% margin in comparison. Really makes me see the value of "diversifying" into longer-duration box spreads as mentioned in the mHFEA thread. Is the duration math as simple as "shorting a 2-year box-spread cancels out holding a 2-year treasury of equal nominal value"? Of course, ignoring the yield difference and the fact that the box spread's duration will lessen over time...

If it's much more complicated than that I will try and find the discussion in the thread.

P.S. am I reading your "5.21%" rate correctly? Wouldn't that be good to "sell" a spread at, or do you mean "sell" as in "shorting a box spread" (taking a loan)?
calwatch
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by calwatch »

reformed.trader wrote: Fri Nov 18, 2022 4:01 am For anyone who has crossed over year end, can you tell me how complicated filing taxes are with box spreads? Must I keep track of unrealized p&l (what I assume I will be paying taxes on) at year end 2022 for my 2023 taxes(when I pay taxes on realized gains/losses)? Or will be broker automatically do this for me? Also, will all this be done under Section 1256? Thank you!
Actually much easier than reporting individual sales and gains. I posted a trade up thread and this is how it reported on my taxes at year end:
Image
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

LazyOverthinker wrote: Wed Nov 23, 2022 3:19 pm
comeinvest wrote: Fri Nov 18, 2022 6:37 pm
LazyOverthinker wrote: Fri Nov 18, 2022 4:05 pm
comeinvest wrote: Mon Nov 14, 2022 3:22 pm
LazyOverthinker wrote: Mon Nov 14, 2022 1:02 pm Can anyone help me understand why IBKR says I'll be receiving $98,545 credit even though my limit price for this 1000 spread box is -984.85? Boxtrades.com and my previous experience said I should be receiving $98,485 credit... it's a pretty significance difference and would explain why I'm not getting a fill
It's just an estimate. They assume you will get a small price improvement, but they were wrong. Let us know what price you got filled. I think most box trades are shared in the other box trades thread.
I see, that seems a tad disingenuous of them... it took 3-4 days for this to fill at my limit price of -984.85, which boxtrades.com says is a 4.75%~ rate as of today
My calculator says you got 4.79%. Mar 16 T-bills are at 4.38%. I think you got a decent fill.
On 11/09 I sold a Mar 31 $90k spread for 4.72% when T-bills were at 4.35%.
Today I sold a Mar 31 $9k spread for 5.21%. I think I got the bad rate because of the low dollar amount and because it filled immediately with price improvement as I didn't have time to calculate limit prices, and also because the $0.05 minimum increment for options makes it hard to target a specific implied rate. It may be worth looking into XSP (not SPX) options, the mini options, for small box trades.
I appreciate the confirmation. It certainly doesn't feel like a good fill - I have to keep checking that IBKR is charging 5.33% margin in comparison. Really makes me see the value of "diversifying" into longer-duration box spreads as mentioned in the mHFEA thread. Is the duration math as simple as "shorting a 2-year box-spread cancels out holding a 2-year treasury of equal nominal value"? Of course, ignoring the yield difference and the fact that the box spread's duration will lessen over time...

If it's much more complicated than that I will try and find the discussion in the thread.

P.S. am I reading your "5.21%" rate correctly? Wouldn't that be good to "sell" a spread at, or do you mean "sell" as in "shorting a box spread" (taking a loan)?
See this and the subsequent posts for using longer dates box spreads viewtopic.php?p=6958586#p6958586

I don't know why you are not satisfied with your trade. And yes, selling and shorting are used synonymously I think. Selling a box is receiving cash.
LazyOverthinker
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by LazyOverthinker »

comeinvest wrote: Wed Nov 23, 2022 5:34 pm See this and the subsequent posts for using longer dates box spreads viewtopic.php?p=6958586#p6958586

I don't know why you are not satisfied with your trade. And yes, selling and shorting are used synonymously I think. Selling a box is receiving cash.
Ah, I failed to communicate my surprise that we went from 3%~ box spread rates to 4.79% so quickly. I'm disappointed relative to the rates that were achievable mere months ago.

Thanks so much for the link!

Personally, "shorting" is more clear to me since you press the "Buy" button when putting in the order for... well, "shorting" a box spread - at least you do the way I order them on IBKR. I'm sure you're right that it's technically synonymous to selling a box spread
reformed.trader
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by reformed.trader »

calwatch wrote: Wed Nov 23, 2022 5:05 pm
reformed.trader wrote: Fri Nov 18, 2022 4:01 am For anyone who has crossed over year end, can you tell me how complicated filing taxes are with box spreads? Must I keep track of unrealized p&l (what I assume I will be paying taxes on) at year end 2022 for my 2023 taxes(when I pay taxes on realized gains/losses)? Or will be broker automatically do this for me? Also, will all this be done under Section 1256? Thank you!
Actually much easier than reporting individual sales and gains. I posted a trade up thread and this is how it reported on my taxes at year end:
Image
That’s great. Thank you!
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

LazyOverthinker wrote: Wed Nov 23, 2022 8:26 pm Personally, "shorting" is more clear to me since you press the "Buy" button when putting in the order for... well, "shorting" a box spread - at least you do the way I order them on IBKR. I'm sure you're right that it's technically synonymous to selling a box spread
I "sell" when I "short", because I enter my orders that way. Otherwise I would get confused. In TWS you can flip your box at any time, even after the trade.
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