Let's Talk SPX Box Spreads

[ma21n2]

I had a long box spread position on Fidelity (i.e., I was loaning money to make interest), which expired this morning (Friday, Dec. 20). I was hoping to buy another box spread using the proceeds today so the cash doesn't sit around for a day, but I couldn't -- the Buying Power on my account didn't include the proceeds from the expired box spread.

When Fidelity auto-exercises AM expiring options (like SPX here), does FIdelity not make the proceeds available for trade the same day? When I sell a stock, I can buy another stock on the same day even though cash doesn't settle until T+1, so I was hoping it'd work simialrly.

(I do have a margin account with Tier 3 enabled for options trading, but the account mostly just has that one box spread, so there wasn't enough Buying Power based on margin alone.)

[comeinvest]

I had a long box spread position on Fidelity (i.e., I was loaning money to make interest), which expired this morning (Friday, Dec. 20). I was hoping to buy another box spread using the proceeds today so the cash doesn't sit around for a day, but I couldn't -- the Buying Power on my account didn't include the proceeds from the expired box spread.

When Fidelity auto-exercises AM expiring options (like SPX here), does FIdelity not make the proceeds available for trade the same day? When I sell a stock, I can buy another stock on the same day even though cash doesn't settle until T+1, so I was hoping it'd work simialrly.

(I do have a margin account with Tier 3 enabled for options trading, but the account mostly just has that one box spread, so there wasn't enough Buying Power based on margin alone.)

That problem probably can only arise in a Reg T margin account, not in a PM account. If you have a Reg T account, this is probably a timing issue with Fidelity's margining system in regards to options expirations. I don't see how this is directly related to settlement on T+1, for the reasons that you mentioned.

[johnanglemen]

I was unable to sell a box spread today anywhere near boxtrade.com's reference point of $995.80. Anyone else have that experience?

And does anyone know how that default value is generated?

[sharukh]

I had a long box spread position on Fidelity (i.e., I was loaning money to make interest), which expired this morning (Friday, Dec. 20). I was hoping to buy another box spread using the proceeds today so the cash doesn't sit around for a day, but I couldn't -- the Buying Power on my account didn't include the proceeds from the expired box spread.

When Fidelity auto-exercises AM expiring options (like SPX here), does FIdelity not make the proceeds available for trade the same day? When I sell a stock, I can buy another stock on the same day even though cash doesn't settle until T+1, so I was hoping it'd work simialrly.

(I do have a margin account with Tier 3 enabled for options trading, but the account mostly just has that one box spread, so there wasn't enough Buying Power based on margin alone.)

That issue is present only in fidelity, other brokers allow what you want to do

[tj-longterm]

I was unable to sell a box spread today anywhere near boxtrade.com's reference point of $995.80. Anyone else have that experience?

And does anyone know how that default value is generated?

Rates went up after the Fed announcement so it’s likely that the reference points on box trade didn’t yet reflect the shift in rates of the box spreads.

[ma21n2]

If my goal is to buy a box spread so I can make like 40 bps more in interest than buying a similar treasury, which numbers should I be comparing?

On Boxtrades.com, I think the rate is calculated using a linear (non-compounded) method.

On SyntheticFi.com, the "Annualized interest rate" is "calculated with daily compounding, and 360 is used as the number of days in a year to match the convention used by other broker-dealers."

As to the current treasury yield, should I be looking at the "Median Yield" of "U.S. Treasury Zeros" on Fidelity's Fixed Income page?

For example, Fidelity currently shows the Median Yield for 5-year US treasury zeros is 4.54% (for 5-year Treasury it's 4.41%). On Boxtrades.com, it shows I can buy a box (5000-6000) expiring in about 5 years for $797.50, at a rate of 5.076% -- so that's 54bps above treasury.

However, that same box is showing as 4.46% Annualized interest rate on SyntheticFi.com, which is 8bps lower than the Treasury yield.

Thank you.

[johnanglemen]

I was unable to sell a box spread today anywhere near boxtrade.com's reference point of $995.80. Anyone else have that experience?

And does anyone know how that default value is generated?

Rates went up after the Fed announcement so it’s likely that the reference points on box trade didn’t yet reflect the shift in rates of the box spreads.

But looking at all the trades on 12/20/24 for Jan 17 boxes on boxtrades.com, there's a huge dispersion: many boxes done as low as 995.35 and as high as 995.75. What explains such a wide gap within the same day?

[half_day]

But looking at all the trades on 12/20/24 for Jan 17 boxes on boxtrades.com, there's a huge dispersion: many boxes done as low as 995.35 and as high as 995.75. What explains such a wide gap within the same day?

This is not that large of a spread. There are a lot of factors that influence this. Largest factors are size of trade and how patient one would be to get their trade filled. You can likely get a few bps of price improvement from ask if you wait a few hours and you send an order at current bid or mid.

[comeinvest]

But looking at all the trades on 12/20/24 for Jan 17 boxes on boxtrades.com, there's a huge dispersion: many boxes done as low as 995.35 and as high as 995.75. What explains such a wide gap within the same day?

This is not that large of a spread. There are a lot of factors that influence this. Largest factors are size of trade and how patient one would be to get their trade filled. You can likely get a few bps of price improvement from ask if you wait a few hours and you send an order at current bid or mid.

"You can likely get a few bps of price improvement from ask if you wait a few hours and you send an order at current bid or mid." - I'm not sure if that works, especially if you don't have access to the complex order book, which no retail broker provides.
The market fluctuations might be larger than the "effective" buy/sell spread, which makes it hard to determine the mid price. In my experience different strike price combinations even of the same size, have different liquidity. If you leave standing limit orders for hours, you *might* get a spontaneous fill, especially if you use common strikes like 4000-5000, but you are also subject to adverse selection when the market moves based on liquidity or on news related to interest rates.

[half_day]

"You can likely get a few bps of price improvement from ask if you wait a few hours and you send an order at current bid or mid." - I'm not sure if that works, especially if you don't have access to the complex order book, which no retail broker provides.
The market fluctuations might be larger than the "effective" buy/sell spread, which makes it hard to determine the mid price. In my experience different strike price combinations even of the same size, have different liquidity. If you leave standing limit orders for hours, you *might* get a spontaneous fill, especially if you use common strikes like 4000-5000, but you are also subject to adverse selection when the market moves based on liquidity or on news related to interest rates.

Totally agree on your points. I think for most retail traders it's fine to be happy with whatever you get at ± 20 bps from an average of the last few hours fills. It's going to be less than most margin rates and is fixed.

If trying for more, I would start on the bid side on boxtrades.com and creep the limit order a few bps up until you get a fill. I have no idea where this order book is provided from, but I think it's a decent free source of info.

In short duration box spreads, there is less of a risk of the market moving on you strongly as the interest rate risk is less. I think it is ok sit on the order longer compared to longer duration ones.

[johnanglemen]

But looking at all the trades on 12/20/24 for Jan 17 boxes on boxtrades.com, there's a huge dispersion: many boxes done as low as 995.35 and as high as 995.75. What explains such a wide gap within the same day?

This is not that large of a spread. There are a lot of factors that influence this. Largest factors are size of trade and how patient one would be to get their trade filled. You can likely get a few bps of price improvement from ask if you wait a few hours and you send an order at current bid or mid.

Are you saying that much larger trades get better rates? (And better from which perspective - long or short?)

The spread seems quite wide to me. On the single day in question, millions of dollars (in single blocs) traded hands at 995.30 (implied rate of 6.33%), millions of dollars at 995.70 (5.78%), and millions of dollars at 996.10 (5.23%). What would explain that? Do certain brokers get better execution? Does PFOF come into play here at all? As someone who has been bitten by this, I'd really love to understand it better.

[comeinvest]

This is not that large of a spread. There are a lot of factors that influence this. Largest factors are size of trade and how patient one would be to get their trade filled. You can likely get a few bps of price improvement from ask if you wait a few hours and you send an order at current bid or mid.

Are you saying that much larger trades get better rates? (And better from which perspective - long or short?)

The spread seems quite wide to me. On the single day in question, millions of dollars (in single blocs) traded hands at 995.30 (implied rate of 6.33%), millions of dollars at 995.70 (5.78%), and millions of dollars at 996.10 (5.23%). What would explain that? Do certain brokers get better execution? Does PFOF come into play here at all? As someone who has been bitten by this, I'd really love to understand it better.

The range on 12/23 for boxes of $100k+ was between ca. 5% and ca. 5.6%. On 12/24 it was between ca. 5% and ca. 5.8%. The reason for the wide spread could be that it's less than 1 month to expiration, and/or that it's not a quarter end expiration month. I see that there was a floor trade on 12/16 about 100 bps higher than the going rate; this could be a false positive of the algo that reconstructs box trades on boxtrades.com. Jan 2025 expiration trades with more than 1 month to expiration seem to be generally more stable, as are Mar 2025 boxes.

[comeinvest]

adamhg
Can you please check boxtrades.com ? The last data is from 12/30. Thanks.

[adamhg]

adamhg
Can you please check boxtrades.com ? The last data is from 12/30. Thanks.

Should be fixed! I have problems with my data provider's permissions every new year and even now, they only had up to 1/8, but updates should be flowing again

[johnanglemen]

Thanks for fixing the website! So just to confirm I'm not crazy, the box rates dropped considerably over the last 2-3 weeks even though nothing really changed in terms of interest rate expectations, right? (Even before today's jobs report.) On this forum and on Twitter, there was some discussion around the surprisingly high premium for box spreads, but it seems like it has normalized now?

[comeinvest]

Thanks for fixing the website! So just to confirm I'm not crazy, the box rates dropped considerably over the last 2-3 weeks even though nothing really changed in terms of interest rate expectations, right? (Even before today's jobs report.) On this forum and on Twitter, there was some discussion around the surprisingly high premium for box spreads, but it seems like it has normalized now?

3-month Term SOFR is about 4.29%. 3-month treasuries are about 4.33%. March expiration SPX boxes traded between ca. 4.5% and 4.7% on Jan 8th. It looks like spreads normalized. I'm still trying to understand the pattern, if any, to avoid in the future. I think 6-month and 12-month box spreads fared better.