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

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

Post by comeinvest »

sharukh wrote: Thu Jan 06, 2022 7:22 pm Hi,

Which is better for lifecycle investing usecase:
Box of this year. Or box of long dated years.
1 year out or 2 years out or 3 years out or 4 years out

Thank you.
First off, everybody's situation is different.

I used to scold the people who sell long dated boxes, and I preached selling short-dates ones, because with long-dated boxes you are basically selling the returns from the term premium to someone else. In other words, you are likely to pay more in the long run.

Also, consider that any longer-dated short box position is expected to be positively correlated to the stock market (because we expect long bonds to be negatively correlated to the stock market, especially during market crashes). So your overall portfolio risk probably increases, if your portfolio returns are dominated by the stock market i.e. if you have a large position in equities. It's kind of the opposite from your ability to get a regular loan during market crashes or recessions: With a margin account, you usually can get cheaper margin loans during bad times, i.e. your perceived "safety" from securing a longer-dated box is not "safety", but some additional risk.
EDIT: I think on the other hand there are times when the risk-free rate drops, but the repo rates briefly increase during really heavy market crashes.

I am now deliberating if I should revise my strategy. I personally use a leveraged equities + treasuries strategy with treasury futures, and boxes to leverage the equities side. Rolling treasury futures is clearly less labor-intensive than renewing SPX boxes at expiration. Therefore I am thinking of using longer-dated boxes, and "neutralizing" them i.e. neutralizing my duration exposure from the boxes by adjusting i.e. adding to the allocation to my treasury futures of about the same duration as my box accordingly.

I am trying to think this through. If we assume that the spread above the risk-free rate of boxes are constant with respect to the box maturities, then I think the only additional expense that I would incur is the expense from the implied spread of the additional treasury futures to compensate, right? Thoughts?
sharukh
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by sharukh »

comeinvest wrote: Thu Jan 06, 2022 8:11 pm
sharukh wrote: Thu Jan 06, 2022 7:22 pm Hi,

Which is better for lifecycle investing usecase:
Box of this year. Or box of long dated years.
1 year out or 2 years out or 3 years out or 4 years out

Thank you.
First off, everybody's situation is different.

I used to scold the people who sell long dated boxes, and I preached selling short-dates ones, because with long-dated boxes you are basically selling the returns from the term premium to someone else. In other words, you are likely to pay more in the long run.

Also, consider that any longer-dated short box position is expected to be positively correlated to the stock market (because we expect long bonds to be negatively correlated to the stock market, especially during market crashes). So your overall portfolio risk probably increases, if your portfolio returns are dominated by the stock market i.e. if you have a large position in equities. It's kind of the opposite from your ability to get a regular loan during market crashes or recessions: With a margin account, you usually can get cheaper margin loans during bad times, i.e. your perceived "safety" from securing a longer-dated box is not "safety", but some additional risk.
EDIT: I think on the other hand there are times when the risk-free rate drops, but the repo rates briefly increase during really heavy market crashes.

I am now deliberating if I should revise my strategy. I personally use a leveraged equities + treasuries strategy with treasury futures, and boxes to leverage the equities side. Rolling treasury futures is clearly less labor-intensive than renewing SPX boxes at expiration. Therefore I am thinking of using longer-dated boxes, and "neutralizing" them i.e. neutralizing my duration exposure from the boxes by adjusting i.e. adding to the allocation to my treasury futures of about the same duration as my box accordingly.

I am trying to think this through. If we assume that the spread above the risk-free rate of boxes are constant with respect to the box maturities, then I think the only additional expense that I would incur is the expense from the implied spread of the additional treasury futures to compensate, right? Thoughts?
1.
Neutralizing concept is good. I read some one shorting 10y Treasury to get a fixed interest rate instead of a variable margin rate

2. Yes, shorting long dated bonds is negatively correlation to stocks.

3. My thoughts: due to the very nature of margin, the loan is callable, so want to go short term and pay low interest rates. There is no guarantee with long dated boxes equivalent to home mortgage. So went with short term

4. If one consider liability matching, then taking long dated short position seemed right.
sharukh
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by sharukh »

richardm wrote: Thu Jan 06, 2022 6:39 pm
sharukh wrote: Thu Jan 06, 2022 6:34 pm Did any one see similar thing happen at interactive brokers, I don't see any thing like this in realized gain or loss, or change of cost basis
My mark-to-market at the end of the year was pretty close to break-even. I sell the longest possible dated boxes, though. The rates are less volatile further out on the curve (generally).

That said, I think this person would "recover" the tax liability in later years, no? Their cost basis was effectively reset higher by the MTM.
Yes, they will recover. I surprisingly have a huge loss. I am guessing I will a huge project next year.
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Silly Wabbit
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Silly Wabbit »

I can't seem to get an order filled. I've played with pricing on a 4700-4500 Dec. 25 at -187.7 and 4600-4500 Dec. 26 at -92. Are my prices to low? I'm at IB, does SMART vs CBOE make a difference?
DMoogle
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by DMoogle »

Silly Wabbit wrote: Fri Jan 07, 2022 10:46 am I can't seem to get an order filled. I've played with pricing on a 4700-4500 Dec. 25 at -187.7 and 4600-4500 Dec. 26 at -92. Are my prices to low? I'm at IB, does SMART vs CBOE make a difference?
How long have you had an open order for?

Worth noting that the '25 options are fairly new, so they're a bit more illiquid (read: harder to fill) than '23 or sooner.
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Silly Wabbit
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Silly Wabbit »

DMoogle wrote: Fri Jan 07, 2022 12:27 pm
Silly Wabbit wrote: Fri Jan 07, 2022 10:46 am I can't seem to get an order filled. I've played with pricing on a 4700-4500 Dec. 25 at -187.7 and 4600-4500 Dec. 26 at -92. Are my prices to low? I'm at IB, does SMART vs CBOE make a difference?
How long have you had an open order for?

Worth noting that the '25 options are fairly new, so they're a bit more illiquid (read: harder to fill) than '23 or sooner.
I've been tinkering with the prices over the last several days. I'll try a sooner expiration date too
corp_sharecropper
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by corp_sharecropper »

So now that I've deleted all my margin loan balances with box spread credits I can't help but feel dumbfounded as to 1) why anyone would ever bother with broker margin loans and 2) why this fact isn't common knowledge to pretty much every margin account holder. I have cut my already low margin rate (IB Pro) in half, not only that, I'm no longer practically forced to stay with IB since I can do this pretty much anywhere. I might even refi my wife's auto loan (3.5%) with this! Hell, I'd even consider making some small loans to responsible family members for less than their bank will and not lose out on it myself. I doubt I'll do the latter so spare me the lecture, but it certainly makes lending money less of a crap situation if one wants to.
DMoogle
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by DMoogle »

Silly Wabbit wrote: Fri Jan 07, 2022 2:18 pm
DMoogle wrote: Fri Jan 07, 2022 12:27 pm
Silly Wabbit wrote: Fri Jan 07, 2022 10:46 am I can't seem to get an order filled. I've played with pricing on a 4700-4500 Dec. 25 at -187.7 and 4600-4500 Dec. 26 at -92. Are my prices to low? I'm at IB, does SMART vs CBOE make a difference?
How long have you had an open order for?

Worth noting that the '25 options are fairly new, so they're a bit more illiquid (read: harder to fill) than '23 or sooner.
I've been tinkering with the prices over the last several days. I'll try a sooner expiration date too
Pretty surprising to me, then, since the implied rate on your prices look reasonable. Yeah, I'd just suggest trying sooner expiration dates.
corp_sharecropper wrote: Fri Jan 07, 2022 4:47 pm So now that I've deleted all my margin loan balances with box spread credits I can't help but feel dumbfounded as to 1) why anyone would ever bother with broker margin loans and 2) why this fact isn't common knowledge to pretty much every margin account holder. I have cut my already low margin rate (IB Pro) in half, not only that, I'm no longer practically forced to stay with IB since I can do this pretty much anywhere. I might even refi my wife's auto loan (3.5%) with this! Hell, I'd even consider making some small loans to responsible family members for less than their bank will and not lose out on it myself. I doubt I'll do the latter so spare me the lecture, but it certainly makes lending money less of a crap situation if one wants to.
Pure ignorance. Google "box spreads" and look at different discussion boards, and you'll be hard-pressed to find anyone talking about it before 2020. I used IB's margin for maybe 5 years after I read about the Mortgage Your Retirement strategy to obtain a low level of leverage before I came across the different strategies here.

Plus, brokerages that offer margin have large incentives to keep it a secret.
sharukh
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by sharukh »

spacecadet610 wrote: Thu Oct 21, 2021 3:26 pm I've done box spread loans 4 times in last couple months for a total of $100k at a rate of about 0.7% using etrade.

I've been using that money to buy SPY as it had dropped.

The box spread loans "cost" me about $1600 in "loan fees" for the $100k loan. So far, i have about $3k in capital gains on the SPY which more than pays for the loan fees.

By the time i have to "pay back" the "loan" in Dec 2023, i'd expect to be much more ahead. No guarantee, but i'm pretty sure.

Much better than casino odds, at least.
Hi spacecadet610,

I just started this in ETrade,
Did they reset the SPX options price for End of the year market marking ?

Thank you.
moneyflowin
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by moneyflowin »

Silly Wabbit wrote: Fri Jan 07, 2022 10:46 am I can't seem to get an order filled. I've played with pricing on a 4700-4500 Dec. 25 at -187.7 and 4600-4500 Dec. 26 at -92. Are my prices to low? I'm at IB, does SMART vs CBOE make a difference?
5Y Treasuries are yielding 1.5%. Of course you're not gonna filled at the rates you're offering. Your prices are too high
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Silly Wabbit
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Silly Wabbit »

moneyflowin wrote: Sat Jan 08, 2022 10:18 pm
Silly Wabbit wrote: Fri Jan 07, 2022 10:46 am I can't seem to get an order filled. I've played with pricing on a 4700-4500 Dec. 25 at -187.7 and 4600-4500 Dec. 26 at -92. Are my prices to low? I'm at IB, does SMART vs CBOE make a difference?
5Y Treasuries are yielding 1.5%. Of course you're not gonna filled at the rates you're offering. Your prices are too high
The implied rate on the 5 year box is like 1.75%. What kind of spread versus treasuries is desirable?
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by parval »

Silly Wabbit wrote: Sun Jan 09, 2022 12:09 pm
moneyflowin wrote: Sat Jan 08, 2022 10:18 pm
Silly Wabbit wrote: Fri Jan 07, 2022 10:46 am I can't seem to get an order filled. I've played with pricing on a 4700-4500 Dec. 25 at -187.7 and 4600-4500 Dec. 26 at -92. Are my prices to low? I'm at IB, does SMART vs CBOE make a difference?
5Y Treasuries are yielding 1.5%. Of course you're not gonna filled at the rates you're offering. Your prices are too high
The implied rate on the 5 year box is like 1.75%. What kind of spread versus treasuries is desirable?
Just use market rates, here's what's been executed recently:

https://www.boxtrades.com/SPX/19DEC25
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Silly Wabbit
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Silly Wabbit »

parval wrote: Sun Jan 09, 2022 1:40 pm
Silly Wabbit wrote: Sun Jan 09, 2022 12:09 pm
moneyflowin wrote: Sat Jan 08, 2022 10:18 pm
Silly Wabbit wrote: Fri Jan 07, 2022 10:46 am I can't seem to get an order filled. I've played with pricing on a 4700-4500 Dec. 25 at -187.7 and 4600-4500 Dec. 26 at -92. Are my prices to low? I'm at IB, does SMART vs CBOE make a difference?
5Y Treasuries are yielding 1.5%. Of course you're not gonna filled at the rates you're offering. Your prices are too high
The implied rate on the 5 year box is like 1.75%. What kind of spread versus treasuries is desirable?
Just use market rates, here's what's been executed recently:

https://www.boxtrades.com/SPX/19DEC25
My prices are in line with what's there, I think, but I'll try again on Monday.
adamhg
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

Silly Wabbit wrote: Sun Jan 09, 2022 2:10 pm
parval wrote: Sun Jan 09, 2022 1:40 pm
Silly Wabbit wrote: Sun Jan 09, 2022 12:09 pm
moneyflowin wrote: Sat Jan 08, 2022 10:18 pm
Silly Wabbit wrote: Fri Jan 07, 2022 10:46 am I can't seem to get an order filled. I've played with pricing on a 4700-4500 Dec. 25 at -187.7 and 4600-4500 Dec. 26 at -92. Are my prices to low? I'm at IB, does SMART vs CBOE make a difference?
5Y Treasuries are yielding 1.5%. Of course you're not gonna filled at the rates you're offering. Your prices are too high
The implied rate on the 5 year box is like 1.75%. What kind of spread versus treasuries is desirable?
Just use market rates, here's what's been executed recently:

https://www.boxtrades.com/SPX/19DEC25
My prices are in line with what's there, I think, but I'll try again on Monday.
Keep in mind the last trade date, especially with the more illiquid tenors. It looks like the last 2025 box spread was several days ago and the market has probably already moved away from the last trades
corp_sharecropper
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by corp_sharecropper »

I'm a little confused why some say this won't work in a regt account. I just tried it one of mine on Friday, just to see. The account had a -14k cash balance. After the $20K box spread, the cash balance was positive. Yes, it wouldn't allow you to really benefit from withdrawing cash from the account or even somehow circumventing the limits of leverage for RegT, but it sure looks as if you can replace your broker margin loan with a box spread credit. If one isn't concerned with withdrawing cash or leveraging to the absolute max, then this seems just fine and certainly better than margin interest rates. Obviously I prefer the situation in a portfolio margin account but it doesn't appear to be a definite "no-go" in RegT, contrary to some posts I've read. What am I missing?
calwatch
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by calwatch »

corp_sharecropper wrote: Sun Jan 09, 2022 5:52 pm I'm a little confused why some say this won't work in a regt account. I just tried it one of mine on Friday, just to see. The account had a -14k cash balance. After the $20K box spread, the cash balance was positive. Yes, it wouldn't allow you to really benefit from withdrawing cash from the account or even somehow circumventing the limits of leverage for RegT, but it sure looks as if you can replace your broker margin loan with a box spread credit. If one isn't concerned with withdrawing cash or leveraging to the absolute max, then this seems just fine and certainly better than margin interest rates. Obviously I prefer the situation in a portfolio margin account but it doesn't appear to be a definite "no-go" in RegT, contrary to some posts I've read. What am I missing?
Nothing really. I think this is absolutely correct, box spreads are a good replacement for margin loans. The primary issue might be closing out those loans when you no longer need them, which is much easier to do with margin, of course.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by slbnoob »

On Fidelity, I don't seem to have an option to specify Limit orders and set the limits. For a small test ($5k), I just set order type to "Net credit", net amount to the midpoint, and trade type to "margin". Don't see an expanded version of this ticket with more fields on Fidelity. Is this OK?
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

So I had several $40k SPX box SELL orders, expirations 03/17, 03/18, and 03/31, open since 01/07/2022 at 0.44% - 0.465% APR (without commissions) that were not filled as of 01/11/2022.
A $100k SELL order, expiration 03/31, was filled at 0.465% APR.

For some reason I was not able to profit from the recent low rates that show in adamhg's chart. Maybe all the recent trades in the chart were customer BUY orders? Thoughts?
Why was there a downtrend in the 1-3 mo. expiration range, when the reference interest rates including those implied by LIBOR and SOFR futures were rising?
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by indexfundfan »

slbnoob wrote: Tue Jan 11, 2022 2:18 pm On Fidelity, I don't seem to have an option to specify Limit orders and set the limits. For a small test ($5k), I just set order type to "Net credit", net amount to the midpoint, and trade type to "margin". Don't see an expanded version of this ticket with more fields on Fidelity. Is this OK?
You should be able to type a number in the "Net Amount" box.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by drk »

slbnoob wrote: Tue Jan 11, 2022 2:18 pm On Fidelity, I don't seem to have an option to specify Limit orders and set the limits. For a small test ($5k), I just set order type to "Net credit", net amount to the midpoint, and trade type to "margin". Don't see an expanded version of this ticket with more fields on Fidelity. Is this OK?
That is the limit. For a combo trade, you place it on the order as a whole, not on each individual leg.
A useful razor: anyone asking about speculative strategies on Bogleheads.org has no business using them.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

comeinvest wrote: Tue Jan 11, 2022 2:43 pm So I had several $40k SPX box SELL orders, expirations 03/17, 03/18, and 03/31, open since 01/07/2022 at 0.44% - 0.465% APR (without commissions) that were not filled as of 01/11/2022.
A $100k SELL order, expiration 03/31, was filled at 0.465% APR.

For some reason I was not able to profit from the recent low rates that show in adamhg's chart. Maybe all the recent trades in the chart were customer BUY orders? Thoughts?
Why was there a downtrend in the 1-3 mo. expiration range, when the reference interest rates including those implied by LIBOR and SOFR futures were rising?
I had the same thing happen yesterday actually and opened an issue with TDA's trade resolution team. They're supposedly escalating to CBOE and will get back to me.

In my case, the spread strikes matched and the trade desk confirmed it executed about 15m after my order was put in and agreed it seemed like I should have gotten the fills. They said possible reason could be if the other order had me beat by time (i.e. they had a GTC order outstanding before mine at the same or better price and got price improvement) but said they'd check to confirm. I'll update here if I ever hear back.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Chuck »

sharukh wrote: Thu Jan 06, 2022 1:26 pm Hi Chuck,

Did ETrade handle End of the year Mark to market properly ?
60/40 split of gains into long and short term ?
Updated new cost basis appropriately ?
Was that a portfolio margin account ?

Thank you.
Yes, there is a special section on the 1099 that says the following, and reports realized and unrealized gains for the options contracts. The 60/40 split is not reported, just the unrealized gains at the end of the current and previous tax years. This is a portfolio margin account, eligibility based on having greater than $100,000 balance, and level 4 options.
"Mark-to-Market" reporting for contracts defined in Internal Revenue Code (IRC) sections 1256(b) and (g). The treatment of any gain or loss is explained in IRS Publication 550 and IRC section
1256(a)(3)
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by klaus14 »

comeinvest wrote: Tue Jan 11, 2022 2:43 pm So I had several $40k SPX box SELL orders, expirations 03/17, 03/18, and 03/31, open since 01/07/2022 at 0.44% - 0.465% APR (without commissions) that were not filled as of 01/11/2022.
A $100k SELL order, expiration 03/31, was filled at 0.465% APR.

For some reason I was not able to profit from the recent low rates that show in adamhg's chart. Maybe all the recent trades in the chart were customer BUY orders? Thoughts?
Why was there a downtrend in the 1-3 mo. expiration range, when the reference interest rates including those implied by LIBOR and SOFR futures were rising?
Image
because duration is getting shorter and shorter ?
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

klaus14 wrote: Tue Jan 11, 2022 5:16 pm
comeinvest wrote: Tue Jan 11, 2022 2:43 pm So I had several $40k SPX box SELL orders, expirations 03/17, 03/18, and 03/31, open since 01/07/2022 at 0.44% - 0.465% APR (without commissions) that were not filled as of 01/11/2022.
A $100k SELL order, expiration 03/31, was filled at 0.465% APR.

For some reason I was not able to profit from the recent low rates that show in adamhg's chart. Maybe all the recent trades in the chart were customer BUY orders? Thoughts?
Why was there a downtrend in the 1-3 mo. expiration range, when the reference interest rates including those implied by LIBOR and SOFR futures were rising?
Image
because duration is getting shorter and shorter ?
Yes that's something to consider; but I think the 1-month to 6+ months notes were all 0.05% until recently. Now the 1 month notes are still at 0.05%, and the 3-month note rose to 0.14% after 12/13/2021. So I think that doesn't explain the downtrend.
LIBOR also increased during Nov and Dec 2021, as did SOFR.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

adamhg wrote: Tue Jan 11, 2022 3:02 pm
comeinvest wrote: Tue Jan 11, 2022 2:43 pm So I had several $40k SPX box SELL orders, expirations 03/17, 03/18, and 03/31, open since 01/07/2022 at 0.44% - 0.465% APR (without commissions) that were not filled as of 01/11/2022.
A $100k SELL order, expiration 03/31, was filled at 0.465% APR.

For some reason I was not able to profit from the recent low rates that show in adamhg's chart. Maybe all the recent trades in the chart were customer BUY orders? Thoughts?
Why was there a downtrend in the 1-3 mo. expiration range, when the reference interest rates including those implied by LIBOR and SOFR futures were rising?
I had the same thing happen yesterday actually and opened an issue with TDA's trade resolution team. They're supposedly escalating to CBOE and will get back to me.

In my case, the spread strikes matched and the trade desk confirmed it executed about 15m after my order was put in and agreed it seemed like I should have gotten the fills. They said possible reason could be if the other order had me beat by time (i.e. they had a GTC order outstanding before mine at the same or better price and got price improvement) but said they'd check to confirm. I'll update here if I ever hear back.
I was merely pointing out that there were lower APR trades than mine. I can't complain, as almost every trade is at different strikes; mine for sure were different from the ones on your chart.

So you had a standing limit order at the exact strike prices and expiration as one of the trades on your charts? I'm curious, please keep us updated on the resolution.

Unfortunately we can't see the order book, at least not until IB fixes their "Complex Orders and Trades Scanner" in TWS.
Not all, but many trades seem to use multiples of 1000 as strike prices. Do you think it's worthwhile using multiples of 1000, to increase the chance of accidentally hitting an opposing customer order?

You are showing only 3rd Friday expirations, out of which the quarter-end 3rd Fridays (Mar, Jun, Sep, Dec) seem to have higher box volumes. I would be curious about the box volumes and box rates of the actual quarterly (Mar 31, Jun 30, Sep 30, Dec 30) and month-end (Feb 28, Apr 29, May 31) expirations. Any chance you can add them?
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by koinos_bios »

Any downside of letting box expire vs closing it?
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by indexfundfan »

koinos_bios wrote: Wed Jan 12, 2022 7:32 am Any downside of letting box expire vs closing it?
I intend to let mine expire. I would close it early only if I no longer need the loan.
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Chuck
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Chuck »

indexfundfan wrote: Wed Jan 12, 2022 9:24 am
koinos_bios wrote: Wed Jan 12, 2022 7:32 am Any downside of letting box expire vs closing it?
I intend to let mine expire. I would close it early only if I no longer need the loan.
You pay no commission to let it expire. Because of bid-ask spreads, and depending on how much time is left to expiration, you may not be able to close it more cheaply than just waiting for it to expire.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Kbg »

Chuck wrote: Wed Jan 12, 2022 9:59 am
indexfundfan wrote: Wed Jan 12, 2022 9:24 am
koinos_bios wrote: Wed Jan 12, 2022 7:32 am Any downside of letting box expire vs closing it?
I intend to let mine expire. I would close it early only if I no longer need the loan.
You pay no commission to let it expire. Because of bid-ask spreads, and depending on how much time is left to expiration, you may not be able to close it more cheaply than just waiting for it to expire.
I did this more as an experiment to learn. I was able to close mine out with a slight profit likely due to the rise in interest rates.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by nalor511 »

Fidelity denied my options app :(
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by indexfundfan »

nalor511 wrote: Wed Jan 12, 2022 11:34 am Fidelity denied my options app :(
Make your investment profile "speculative".
My signature has been deleted.
adamhg
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

comeinvest wrote: Tue Jan 11, 2022 9:07 pm So you had a standing limit order at the exact strike prices and expiration as one of the trades on your charts? I'm curious, please keep us updated on the resolution.
Yes thats right. I was noticing a bunch of preferential rate trades at that strike so I thought I'd put an open GTC order in to see if I could get the fill. The next day showed that more came through but I didn't get the fill. I called back today and the response was that the trade was a floor trade and did not go through the electronic exchange so I was not due the fill. That was news to me but I guess good info for others. If you're seeing some good rates on the site, they're real but might also be floor trades that aren't available to us. I'm looking into how to either filter them out or flag them maybe?
comeinvest wrote: Tue Jan 11, 2022 9:07 pm Unfortunately we can't see the order book, at least not until IB fixes their "Complex Orders and Trades Scanner" in TWS.
Not all, but many trades seem to use multiples of 1000 as strike prices. Do you think it's worthwhile using multiples of 1000, to increase the chance of accidentally hitting an opposing customer order?
I was hoping that with the example, us mere retail traders could standardize on a strike and better match against each other. I'm happy to build out the UI if others think that's useful. I was able to successfully test a p2p trade with a feller BH user (feel free to identify yourself if you'd like) and the trade filled at a price that probably wouldn't otherwise get filled for a while (or ever), so in theory it should work
comeinvest wrote: Tue Jan 11, 2022 9:07 pm You are showing only 3rd Friday expirations, out of which the quarter-end 3rd Fridays (Mar, Jun, Sep, Dec) seem to have higher box volumes. I would be curious about the box volumes and box rates of the actual quarterly (Mar 31, Jun 30, Sep 30, Dec 30) and month-end (Feb 28, Apr 29, May 31) expirations. Any chance you can add them?
I'll look into it, but I don't have them because they're different tickers (SPXW) and I only have so many available to me. I may be able to add a few more, but theres thousands of weekly options so those just might not be easily doable. I'll have to look at the quarterlies to see how many additional options I'd need to monitor there. Still trying to run this on freeish data/infrastructure as much as possible, which is a frustrating limitation for sure.
vimpindare
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by vimpindare »

koinos_bios wrote: Wed Jan 12, 2022 7:32 am Any downside of letting box expire vs closing it?
Isn't there pin risk arising from the short legs? Any time I have short option positions I ALWAYS prefer to close out early vs letting it expire
Chuck
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Chuck »

vimpindare wrote: Wed Jan 12, 2022 12:58 pm Isn't there pin risk arising from the short legs? Any time I have short option positions I ALWAYS prefer to close out early vs letting it expire
I don't believe there is pin risk for cash-settled index options.
LoveTheBogle
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by LoveTheBogle »

Chuck wrote: Wed Jan 12, 2022 1:06 pm
vimpindare wrote: Wed Jan 12, 2022 12:58 pm Isn't there pin risk arising from the short legs? Any time I have short option positions I ALWAYS prefer to close out early vs letting it expire
I don't believe there is pin risk for cash-settled index options.
What is pin risk?
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

adamhg wrote: Wed Jan 12, 2022 12:45 pm
comeinvest wrote: Tue Jan 11, 2022 9:07 pm You are showing only 3rd Friday expirations, out of which the quarter-end 3rd Fridays (Mar, Jun, Sep, Dec) seem to have higher box volumes. I would be curious about the box volumes and box rates of the actual quarterly (Mar 31, Jun 30, Sep 30, Dec 30) and month-end (Feb 28, Apr 29, May 31) expirations. Any chance you can add them?
I'll look into it, but I don't have them because they're different tickers (SPXW) and I only have so many available to me. I may be able to add a few more, but theres thousands of weekly options so those just might not be easily doable. I'll have to look at the quarterlies to see how many additional options I'd need to monitor there. Still trying to run this on freeish data/infrastructure as much as possible, which is a frustrating limitation for sure.
Are you saying when you use SPXW as a symbol, you would get all expirations in your feed? I think for boxes, not many are interested in the weekly expirations, but many are interested in end of month and end of quarter, and possibly the 3rd Friday expirations.

On another note, the symbols are still confusing to me. Every SPX option seems to be paired with an SPXW with the same settlement date, but PM settlement and last trading date one day prior. It is beyond me why there are those two different kinds of options with the same settlement date.
Then, I think the "W" in SPXW was inspired by the word "weekly", but the settlement dates are 3rd Fridays, end of quarter + end of month, and Monday/Wednesday/Friday. How long in advance the SPX and SPXW options are listed is different for quarterly/monthly/etc.
sharukh
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by sharukh »

Chuck wrote: Tue Jan 11, 2022 4:58 pm
sharukh wrote: Thu Jan 06, 2022 1:26 pm Hi Chuck,

Did ETrade handle End of the year Mark to market properly ?
60/40 split of gains into long and short term ?
Updated new cost basis appropriately ?
Was that a portfolio margin account ?

Thank you.
Yes, there is a special section on the 1099 that says the following, and reports realized and unrealized gains for the options contracts. The 60/40 split is not reported, just the unrealized gains at the end of the current and previous tax years. This is a portfolio margin account, eligibility based on having greater than $100,000 balance, and level 4 options.
"Mark-to-Market" reporting for contracts defined in Internal Revenue Code (IRC) sections 1256(b) and (g). The treatment of any gain or loss is explained in IRS Publication 550 and IRC section
1256(a)(3)
Thank you. Will look out for this in 1099.
corp_sharecropper
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by corp_sharecropper »

LoveTheBogle wrote: Wed Jan 12, 2022 3:06 pm
Chuck wrote: Wed Jan 12, 2022 1:06 pm
vimpindare wrote: Wed Jan 12, 2022 12:58 pm Isn't there pin risk arising from the short legs? Any time I have short option positions I ALWAYS prefer to close out early vs letting it expire
I don't believe there is pin risk for cash-settled index options.
What is pin risk?
https://www.investopedia.com/terms/p/pinrisk.asp



I haven't given it much thought but I'm pretty sure there's no pin risk for euro options off the top of my head. Besides, the most liquid SPX options are the ones that expire in the AM of expiration day, at least that's what I've noticed.
adamhg
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

comeinvest wrote: Wed Jan 12, 2022 4:00 pm Are you saying when you use SPXW as a symbol, you would get all expirations in your feed? I think for boxes, not many are interested in the weekly expirations, but many are interested in end of month and end of quarter, and possibly the 3rd Friday expirations.
I misread your OP. I looked at it and I think I have enough bandwidth to do basic monitoring of EOM, EOQ. There are about 4700 total contracts that I have to monitor for all of those, so started it today and will see how the data looks and/if there are as many/more box spreads trading there as the SPX contracts. Looking into data source alternatives. Happy to hear recommendations if people have them.

Aren't 3rd Fridays already there? Or do you mean the weeklys? Or are you saying that that's the last priority and the others are higher? The main reason I have them is because SPX is the only ones with LEAPs. The SPXWs are only ~1 year out.
comeinvest wrote: Wed Jan 12, 2022 4:00 pm On another note, the symbols are still confusing to me. Every SPX option seems to be paired with an SPXW with the same settlement date, but PM settlement and last trading date one day prior. It is beyond me why there are those two different kinds of options with the same settlement date.
Then, I think the "W" in SPXW was inspired by the word "weekly", but the settlement dates are 3rd Fridays, end of quarter + end of month, and Monday/Wednesday/Friday. How long in advance the SPX and SPXW options are listed is different for quarterly/monthly/etc.
SPX contracts are quite confusing. I seem to recall that the difference between SPX and SPXW is the settlement time, and maybe they picked the "W" for weekly when it first came out, but SPXW are also the EOM and EOQ contracts and all PM settle whereas SPX all settle AM. I think the ticker change had more to do with the settlement type than it was the expiration dates
vimpindare
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by vimpindare »

corp_sharecropper wrote: Wed Jan 12, 2022 9:26 pm
LoveTheBogle wrote: Wed Jan 12, 2022 3:06 pm
Chuck wrote: Wed Jan 12, 2022 1:06 pm
vimpindare wrote: Wed Jan 12, 2022 12:58 pm Isn't there pin risk arising from the short legs? Any time I have short option positions I ALWAYS prefer to close out early vs letting it expire
I don't believe there is pin risk for cash-settled index options.
What is pin risk?
https://www.investopedia.com/terms/p/pinrisk.asp



I haven't given it much thought but I'm pretty sure there's no pin risk for euro options off the top of my head. Besides, the most liquid SPX options are the ones that expire in the AM of expiration day, at least that's what I've noticed.
On 2nd thought I agree - since there is no early exercise there is unlikely to be pin risk on SPX options
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Silly Wabbit
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Silly Wabbit »

Does anyone use box spreads at Schwab? The website trading option is pretty basic - no P&L charts - but StreetSmart Edge, a desktop app, seems ok.

I saw a mention up-thread that said Schwab doesn't support portfolio margin. They do, but it requires permission to trade uncovered options (level 3 at Schwab). It looks comparable to IBKR: https://client.schwab.com/secured/margin/portfolio

More context - After experimenting with some modest amounts at IBKR, I was all set to move there from Schwab, but the day after starting a transfer out, Schwab phoned me up and asked what they could do for me. I should have just asked for a bonus, but instead I got margin rates comparable to IBKR - not the most impactful concession given we're on a box spread thread, I know.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

Silly Wabbit wrote: Thu Jan 13, 2022 11:35 am Does anyone use box spreads at Schwab? The website trading option is pretty basic - no P&L charts - but StreetSmart Edge, a desktop app, seems ok.

I saw a mention up-thread that said Schwab doesn't support portfolio margin. They do, but it requires permission to trade uncovered options (level 3 at Schwab). It looks comparable to IBKR: https://client.schwab.com/secured/margin/portfolio

More context - After experimenting with some modest amounts at IBKR, I was all set to move there from Schwab, but the day after starting a transfer out, Schwab phoned me up and asked what they could do for me. I should have just asked for a bonus, but instead I got margin rates comparable to IBKR - not the most impactful concession given we're on a box spread thread, I know.
There were some posts by another Schwab user a few pages up. To me it looked like he had box spreads and the margin requirements were similar to IB, but he didn't report back to confirm. Please let us know how it goes when you try it with Schwab. The interest rate concession would indeed not be very valuable to me, except maybe for a few days of small negative balances that I have sometimes, or occasional large balances when refinancing an options loan at expiration while waiting for an option order fill.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

adamhg wrote: Thu Jan 13, 2022 9:20 am
comeinvest wrote: Wed Jan 12, 2022 4:00 pm Are you saying when you use SPXW as a symbol, you would get all expirations in your feed? I think for boxes, not many are interested in the weekly expirations, but many are interested in end of month and end of quarter, and possibly the 3rd Friday expirations.
I misread your OP. I looked at it and I think I have enough bandwidth to do basic monitoring of EOM, EOQ. There are about 4700 total contracts that I have to monitor for all of those, so started it today and will see how the data looks and/if there are as many/more box spreads trading there as the SPX contracts. Looking into data source alternatives. Happy to hear recommendations if people have them.

Aren't 3rd Fridays already there? Or do you mean the weeklys? Or are you saying that that's the last priority and the others are higher? The main reason I have them is because SPX is the only ones with LEAPs. The SPXWs are only ~1 year out.
I meant the 3rd Fridays SPXW options. I know you already have the 3rd Fridays SPX options.
adamhg wrote: Thu Jan 13, 2022 9:20 am
comeinvest wrote: Wed Jan 12, 2022 4:00 pm On another note, the symbols are still confusing to me. Every SPX option seems to be paired with an SPXW with the same settlement date, but PM settlement and last trading date one day prior. It is beyond me why there are those two different kinds of options with the same settlement date.
Then, I think the "W" in SPXW was inspired by the word "weekly", but the settlement dates are 3rd Fridays, end of quarter + end of month, and Monday/Wednesday/Friday. How long in advance the SPX and SPXW options are listed is different for quarterly/monthly/etc.
SPX contracts are quite confusing. I seem to recall that the difference between SPX and SPXW is the settlement time, and maybe they picked the "W" for weekly when it first came out, but SPXW are also the EOM and EOQ contracts and all PM settle whereas SPX all settle AM. I think the ticker change had more to do with the settlement type than it was the expiration dates
The thing that I don't understand is why are there 2 different types of options with the same 3rd Fridays settlement dates. I hear that for some users who use options for hedging, the AM settlement is a problem (this is not a problem for boxes as they are market neutral). But then why don't they offer just one type of option with PM settlement? In other words what is the benefit of the AM settlement and the last trading day being the previous day? I know it doesn't matter for boxes, but I always want to understand what I invest in.
calwatch
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by calwatch »

The AM settlement was the original SPX option and weeklies used to be AM settled as well, but changed due to user requests. Here's the IBKR memo when it happened in 2010: https://ibkr.info/article/1456

Of course, they started as PM but it caused issues on expiration day. Here's some history: https://tickertape.tdameritrade.com/tra ... ment-15020
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

calwatch wrote: Thu Jan 13, 2022 3:49 pm The AM settlement was the original SPX option and weeklies used to be AM settled as well, but changed due to user requests. Here's the IBKR memo when it happened in 2010: https://ibkr.info/article/1456

Of course, they started as PM but it caused issues on expiration day. Here's some history: https://tickertape.tdameritrade.com/tra ... ment-15020
Thanks. Looks like the 3rd Friday SPXW's were introduced later then 2010.

I understand they switched to the AM settlement to reduce volatility on 3rd Fridays, but then introduced another PM settled version for those who care about PM settlement, with the PM version listed about 6 months out (monthly) and 12 months out (quarterly). Both AM and PM should have the exact same economic valuation (because the settlement cash flow occurs at the same time, one day after the settlement date), i.e. we have a split options market because of a technicality.

Both the 3rd Fridays AM (SPX) and 3rd Fridays PM (SPXW) are called "regular" at Interactive Brokers, while all other SPXW expirations (weekly, monthly, quarterly) are non-"regular". The customer can filter for "regular" and "all". I'm not sure what the definition of "regular" is other than 3rd Fridays vs. other expiration dates.
hithere
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by hithere »

Hello everyone. My portfolio with IB comprises solely of an accumulating ETF based on MSCI ACWI and traded on an European exchange (I'm European). I have a small margin loan (~5% of portfolio value) that I intend to maintain long-term. The interest is currently 1.5%.

I am now considering replacing my margin loan with options due to the lack of margin calls of the latter and potentially lower costs. I'm not a trader and I've never had much to do with options, but I have been reading some theory in the past 2 hours to get up to speed. Naturally, I don't know that much about options yet, but I'm slowly getting there.

Regarding taxes:

1. Leverage through margin - ETFs, regardless of whether they've been bought on margin, are not taxable in my country, but the interest paid for the margin loan is not deductible.
2. Leverage through options - Profits from options are taxed at 10%. I must, however, execute 2 or fewer options trades per year, otherwise I might get taxed at a higher rate.

Given these constraints, do you think it's feasible to switch from margin to options? The box spread strategy in particular doesn't seem like it would conform to the 2-trades-per-year rule, but wouldn't it be okay to just buy calls that are as deep in the money as possible and expire in, say, December of each year or every 2-3 years, and just roll them over for 30-40 years? What about a straddle or other strategy? Wouldn't that work even better?

My other question is what underlying asset I should be using for my options strategy. It probably should be highly-correlated to the ACWI index in order for my options to kind of mimic the performance of my main non-leveraged portfolio, but I don't really know what to look for among the sea of tickers. Is it just correlation to ACWI and options liquidity? By the way, it doesn't matter which exchange my options are traded on, I have access to all of the exchanges in the world that IB supports.

Thank you.
adamhg
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

hithere wrote: Mon Jan 17, 2022 4:16 am Hello everyone. My portfolio with IB comprises solely of an accumulating ETF based on MSCI ACWI and traded on an European exchange (I'm European). I have a small margin loan (~5% of portfolio value) that I intend to maintain long-term. The interest is currently 1.5%.

I am now considering replacing my margin loan with options due to the lack of margin calls of the latter and potentially lower costs. I'm not a trader and I've never had much to do with options, but I have been reading some theory in the past 2 hours to get up to speed. Naturally, I don't know that much about options yet, but I'm slowly getting there.

Regarding taxes:

1. Leverage through margin - ETFs, regardless of whether they've been bought on margin, are not taxable in my country, but the interest paid for the margin loan is not deductible.
2. Leverage through options - Profits from options are taxed at 10%. I must, however, execute 2 or fewer options trades per year, otherwise I might get taxed at a higher rate.

Given these constraints, do you think it's feasible to switch from margin to options? The box spread strategy in particular doesn't seem like it would conform to the 2-trades-per-year rule, but wouldn't it be okay to just buy calls that are as deep in the money as possible and expire in, say, December of each year or every 2-3 years, and just roll them over for 30-40 years? What about a straddle or other strategy? Wouldn't that work even better?

My other question is what underlying asset I should be using for my options strategy. It probably should be highly-correlated to the ACWI index in order for my options to kind of mimic the performance of my main non-leveraged portfolio, but I don't really know what to look for among the sea of tickers. Is it just correlation to ACWI and options liquidity? By the way, it doesn't matter which exchange my options are traded on, I have access to all of the exchanges in the world that IB supports.

Thank you.
Won't make any recommendations about your portfolio, but I'm sure you already are aware, options aren't exactly the same as leverage because you'll also contend with Vega.

For the box spread questions, you could do a single box spread a year but the 1 year rate is probably higher than your current margin rate. With that said, shorting a box spread guarantees a loss if held to expiration, so unless you're doing other options, you shouldn't have to worry about gains on your options.
bling
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by bling »

hithere wrote: Mon Jan 17, 2022 4:16 am Hello everyone. My portfolio with IB comprises solely of an accumulating ETF based on MSCI ACWI and traded on an European exchange (I'm European). I have a small margin loan (~5% of portfolio value) that I intend to maintain long-term. The interest is currently 1.5%.

I am now considering replacing my margin loan with options due to the lack of margin calls of the latter and potentially lower costs. I'm not a trader and I've never had much to do with options, but I have been reading some theory in the past 2 hours to get up to speed. Naturally, I don't know that much about options yet, but I'm slowly getting there.

Regarding taxes:

1. Leverage through margin - ETFs, regardless of whether they've been bought on margin, are not taxable in my country, but the interest paid for the margin loan is not deductible.
2. Leverage through options - Profits from options are taxed at 10%. I must, however, execute 2 or fewer options trades per year, otherwise I might get taxed at a higher rate.

Given these constraints, do you think it's feasible to switch from margin to options? The box spread strategy in particular doesn't seem like it would conform to the 2-trades-per-year rule, but wouldn't it be okay to just buy calls that are as deep in the money as possible and expire in, say, December of each year or every 2-3 years, and just roll them over for 30-40 years? What about a straddle or other strategy? Wouldn't that work even better?

My other question is what underlying asset I should be using for my options strategy. It probably should be highly-correlated to the ACWI index in order for my options to kind of mimic the performance of my main non-leveraged portfolio, but I don't really know what to look for among the sea of tickers. Is it just correlation to ACWI and options liquidity? By the way, it doesn't matter which exchange my options are traded on, I have access to all of the exchanges in the world that IB supports.

Thank you.
options are the worst option (lol) for leverage.

1) you need to roll them. every time you do this, it's a taxable transaction.
2) LEAPs have low liquidity. you're gonna lose some percentage of your holding just by entering the trade.
3) no dividends
4) hard to rebalance
hithere
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by hithere »

Thank you for your inputs. Now that I know more about options and had a chance to take a look at how they are priced while the market was open, it seems that they won't work for me. According to my calculations, the cost to hold a synthetic long position for a year would be about 2.15%, whereas the cost associated with a real long position bought on margin would be 1.5% for the same period, which does make sense given that the former percentage is fixed for the 12 months until expiration and the latter isn't, but I was hoping to be able to at least get a lower cost with options to make up for their other inconveniences.
DMoogle
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by DMoogle »

hithere wrote: Mon Jan 17, 2022 3:07 pm Thank you for your inputs. Now that I know more about options and had a chance to take a look at how they are priced while the market was open, it seems that they won't work for me. According to my calculations, the cost to hold a synthetic long position for a year would be about 2.15%, whereas the cost associated with a real long position bought on margin would be 1.5% for the same period, which does make sense given that the former percentage is fixed for the 12 months until expiration and the latter isn't, but I was hoping to be able to at least get a lower cost with options to make up for their other inconveniences.
Hmmm I'm curious what you're looking at. There was some discussion earlier in the thread that suggested that European boxes have access to a wider range of securities and could get negative rates.
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