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

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

Post by moneyflowin »

Freebee34 wrote: Thu Oct 21, 2021 8:33 am
stay_the_course wrote: Wed Oct 20, 2021 10:42 pm Curious if anyone knows, since financing using box spreads seems to have been around for quite a while: historically what has the implied interest been on these usually? 2-3 year treasuries + 0.3/0.5 or something else? (granted of course that it might vary widely based on your fill)
I found the best executed rates to be treasuries +25 basis points. Treasuries +45 is more typical though. If you do a lot (500k+) you might be able to get it down to 15
I found the rate premium to correlate to duration. The yield curve on boxes is flatter than on Treasuries. In particular, there's a 32bp difference between 1Y and 2Y Treasuries recently, but hardly any difference for boxes of the same duration.

To get T+15bp, you'd need to trade in the multi-million dollar range.
stay_the_course
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by stay_the_course »

Despite all my misgivings, I spent all of last weekend understanding the concepts behind this transaction and finally bit the bullet. 100k Dec '23 box filled at roughly 0.75% and margin loan reduced by that amount. One thing I don't understand is the daily movements of the different legs. I would have assumed the losses and gains of all the different legs cancel out, but it looks like there is usually some net daily gain or loss not sure why.
nalor511
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by nalor511 »

stay_the_course wrote: Thu Oct 21, 2021 7:16 pm Despite all my misgivings, I spent all of last weekend understanding the concepts behind this transaction and finally bit the bullet. 100k Dec '23 box filled at roughly 0.75% and margin loan reduced by that amount. One thing I don't understand is the daily movements of the different legs. I would have assumed the losses and gains of all the different legs cancel out, but it looks like there is usually some net daily gain or loss not sure why.
I understand everything except selecting what prices to use, walking them up down, etc. The spreadsheet doesn't explain this, Ave the articles don't really either. Too bad you can't just select by interest rate :)
InvestorDave
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by InvestorDave »

stay_the_course wrote: Thu Oct 21, 2021 7:16 pm Despite all my misgivings, I spent all of last weekend understanding the concepts behind this transaction and finally bit the bullet. 100k Dec '23 box filled at roughly 0.75% and margin loan reduced by that amount. One thing I don't understand is the daily movements of the different legs. I would have assumed the losses and gains of all the different legs cancel out, but it looks like there is usually some net daily gain or loss not sure why.
The slight differences in the daily gain/loss not evening out is most likely just due to the wide bid/ask spreads on each of the different contract legs. Most brokers usually try to mark the middle of the bid/ask to determine gain/loss for each position. That works well when the bid/ask spread is tight but not so well when there’s a large gap.
InvestorDave
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by InvestorDave »

nalor511 wrote: Thu Oct 21, 2021 7:19 pm
I understand everything except selecting what prices to use, walking them up down, etc. The spreadsheet doesn't explain this, Ave the articles don't really either. Too bad you can't just select by interest rate :)
The prices that you use don’t actually matter as long as you can get your order filled. Let’s say that you want to borrow ~$50,000. Then you can buy/sell 5 4500/4600 spreads or you could buy/sell 1 4000/4500 spread and either option will net you around the same amount. You want to double check when you enter this trade that the trade screen shows that you are going to receive money when you make the trade and you need to make sure you are entering all 4 option contracts in the same order. You can adjust the limit price to affect how much you will receive in proceeds which is how you calculate your effective interest rate. Hope that helps!
calwatch
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by calwatch »

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 0.07% 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.
The math comes to 0.70% not 0.07% APR. But I am doing something similar by buying SFYF (the SoFi top 50 stocks members of their platform are using) as a momentum play. Am up quite a bit but of course things could change.

As far as how to set up a box spread, I just gave a demo on how to do it with Fidelity. Unfortunately on Ameritrade you have to use Think or Swim which I know can be intimidating to folks.
moneyflowin
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by moneyflowin »

InvestorDave wrote: Thu Oct 21, 2021 7:54 pm
stay_the_course wrote: Thu Oct 21, 2021 7:16 pm Despite all my misgivings, I spent all of last weekend understanding the concepts behind this transaction and finally bit the bullet. 100k Dec '23 box filled at roughly 0.75% and margin loan reduced by that amount. One thing I don't understand is the daily movements of the different legs. I would have assumed the losses and gains of all the different legs cancel out, but it looks like there is usually some net daily gain or loss not sure why.
The slight differences in the daily gain/loss not evening out is most likely just due to the wide bid/ask spreads on each of the different contract legs. Most brokers usually try to mark the middle of the bid/ask to determine gain/loss for each position. That works well when the bid/ask spread is tight but not so well when there’s a large gap.
And this effect is why some people fear doing boxes on IBKR. If there's a major event, like Flash Crash 2010, there's no telling how the individual legs will be marked, possibly causing your equity to decline substantially and triggering a margin call, even though we know the position is neutral. The other time the legs can get marked to some wild, unreasonable number is the day of expiration.
InvestorDave
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by InvestorDave »

moneyflowin wrote: Thu Oct 21, 2021 8:33 pm
InvestorDave wrote: Thu Oct 21, 2021 7:54 pm
stay_the_course wrote: Thu Oct 21, 2021 7:16 pm Despite all my misgivings, I spent all of last weekend understanding the concepts behind this transaction and finally bit the bullet. 100k Dec '23 box filled at roughly 0.75% and margin loan reduced by that amount. One thing I don't understand is the daily movements of the different legs. I would have assumed the losses and gains of all the different legs cancel out, but it looks like there is usually some net daily gain or loss not sure why.
The slight differences in the daily gain/loss not evening out is most likely just due to the wide bid/ask spreads on each of the different contract legs. Most brokers usually try to mark the middle of the bid/ask to determine gain/loss for each position. That works well when the bid/ask spread is tight but not so well when there’s a large gap.
And this effect is why some people fear doing boxes on IBKR. If there's a major event, like Flash Crash 2010, there's no telling how the individual legs will be marked, possibly causing your equity to decline substantially and triggering a margin call, even though we know the position is neutral. The other time the legs can get marked to some wild, unreasonable number is the day of expiration.
I don’t have any experience with IBKR, but I opened a 20k spread on Etrade and E*Trade’s margin page properly labels the position as a “Box Spread” and shows my margin requirement as the exact 20k that will be due when it expires.
calwatch
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by calwatch »

Here is how it looks on Ameritrade (not Think or Swim). You have to use the special ticket $SPX.X to get to SPX options. At the end the estimated amount should be positive, if you are doing it right.

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

Post by adamhg »

I took a few days to put a website together so I didn't need to post every week. In case anybody else is interested, you can find my historical box spread data here: www.boxtrades.com

Welcome feedback for any changes or improvements
stay_the_course
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by stay_the_course »

adamhg wrote: Fri Oct 22, 2021 4:22 pm I took a few days to put a website together so I didn't need to post every week. In case anybody else is interested, you can find my historical box spread data here: www.boxtrades.com

Welcome feedback for any changes or improvements
Very cool, thanks for sharing!
moneyflowin
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by moneyflowin »

adamhg wrote: Fri Oct 22, 2021 4:22 pm I took a few days to put a website together so I didn't need to post every week. In case anybody else is interested, you can find my historical box spread data here: www.boxtrades.com

Welcome feedback for any changes or improvements
Nice. No wonder I hardly see any boxes when eyeballing the time & sales for SPX. It's because there are only a couple trades per day! Unless traders are legging in with 2x synthetic stock or 2x vertical spreads.

I assume you're getting data for only SPX. Maybe you can add other indexes like NDX, XEO and RUT
LoveTheBogle
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by LoveTheBogle »

adamhg wrote: Fri Oct 22, 2021 4:22 pm I took a few days to put a website together so I didn't need to post every week. In case anybody else is interested, you can find my historical box spread data here: www.boxtrades.com

Welcome feedback for any changes or improvements
$140 MILlION single box today? Seems to be a major outlier.

How confident are you of the data?

Thanks for putting the time into this. Are you scraping the data or manually doing it?
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cflannagan
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by cflannagan »

LoveTheBogle wrote: Fri Oct 22, 2021 9:45 pm
adamhg wrote: Fri Oct 22, 2021 4:22 pm I took a few days to put a website together so I didn't need to post every week. In case anybody else is interested, you can find my historical box spread data here: www.boxtrades.com

Welcome feedback for any changes or improvements
$140 MILlION single box today? Seems to be a major outlier.

How confident are you of the data?

Thanks for putting the time into this. Are you scraping the data or manually doing it?
Typo/glitch? I don't know much about box spreads, but strikes of 100-4000 doesn't look right.
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

xerxes101 wrote: Sat Oct 09, 2021 8:57 am
So you mean after ones initiates the box spread position the margin requirements could change / increase? could you expand on this?
This is a real situation of margin changes announcement:

"There are upcoming changes to the margin algorithm that will affect all non-US stock derivative positions.
As of November 12, 2021, The Options Clearing Corporation (OCC) will discontinue the publishing of risk parameters for non-US stock derivatives. This means that all non-US stock derivatives will be subject to rule-based margin described here: US Options Margin Requirements ( LINK../index.php ).

This change will occur after the New York close on October 27, 2021.
To evaluate the full impact of this change on your portfolio so that your account may remain margin compliant, please see KB Article 2957: Risk Navigator: Alternative Margin Calculator ( LINK../2957 ), and from the margin mode setting in Risk Navigator select Margin 20211028.

Consistent with our stated policy, accounts that are unable to carry the positions under these new margin requirements are subject to automated liquidations in order to bring the account into margin compliance.

Please contact your local Client Service ( LINK../index.php ) center should you have any questions regarding this notice."
moneyflowin
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by moneyflowin »

LoveTheBogle wrote: Fri Oct 22, 2021 9:45 pm
adamhg wrote: Fri Oct 22, 2021 4:22 pm I took a few days to put a website together so I didn't need to post every week. In case anybody else is interested, you can find my historical box spread data here: www.boxtrades.com

Welcome feedback for any changes or improvements
$140 MILlION single box today? Seems to be a major outlier.

How confident are you of the data?

Thanks for putting the time into this. Are you scraping the data or manually doing it?
Not an outlier. There have been numerous boxes in the tens of millions or hundred+ million range

This is an institutional financing tool
stay_the_course
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by stay_the_course »

Fxmove88 wrote: Fri Oct 22, 2021 10:21 pm
xerxes101 wrote: Sat Oct 09, 2021 8:57 am
So you mean after ones initiates the box spread position the margin requirements could change / increase? could you expand on this?
This is a real situation of margin changes announcement:

"There are upcoming changes to the margin algorithm that will affect all non-US stock derivative positions.
As of November 12, 2021, The Options Clearing Corporation (OCC) will discontinue the publishing of risk parameters for non-US stock derivatives. This means that all non-US stock derivatives will be subject to rule-based margin described here: US Options Margin Requirements ( LINK../index.php ).

This change will occur after the New York close on October 27, 2021.
To evaluate the full impact of this change on your portfolio so that your account may remain margin compliant, please see KB Article 2957: Risk Navigator: Alternative Margin Calculator ( LINK../2957 ), and from the margin mode setting in Risk Navigator select Margin 20211028.

Consistent with our stated policy, accounts that are unable to carry the positions under these new margin requirements are subject to automated liquidations in order to bring the account into margin compliance.

Please contact your local Client Service ( LINK../index.php ) center should you have any questions regarding this notice."
Just because it was not clear to me at first: seems to apply to IBKR and to non-US derivatives (I.e not SPX)
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

For trading boxes in IBKR it is better to mark "LIQUIDATE LAST" from tws , perhaps this will save from auto liquidation as IBKR does not issue margin call.
Last edited by Fxmove88 on Sat Oct 23, 2021 12:03 am, edited 1 time in total.
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

LoveTheBogle wrote: Fri Oct 22, 2021 9:45 pm
$140 MILlION single box today? Seems to be a major outlier.

How confident are you of the data?

Thanks for putting the time into this. Are you scraping the data or manually doing it?
$3.5 billion box traded between 2 firms

https://www.elitetrader.com/et/threads/ ... th.358425/
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

adamhg wrote: Fri Oct 22, 2021 4:22 pm I took a few days to put a website together so I didn't need to post every week. In case anybody else is interested, you can find my historical box spread data here: www.boxtrades.com

Welcome feedback for any changes or improvements
wow thank you for putting this on such a nice website. I can see my box transaction in October is accurately recorded in the website. Where did you get these data?

From this chart, it shows that the ability of someone to sell box to get low interest is independent of the size of the boxes but rather maybe from pure luck and patient? I am usually not patient and I just get the average along the line and it immediately gets filled in just a few minutes.
adamhg
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

moneyflowin wrote: Fri Oct 22, 2021 9:32 pm Nice. No wonder I hardly see any boxes when eyeballing the time & sales for SPX. It's because there are only a couple trades per day! Unless traders are legging in with 2x synthetic stock or 2x vertical spreads.

I assume you're getting data for only SPX. Maybe you can add other indexes like NDX, XEO and RUT
I am checking SPX, NDX, RUT, VIX, DJX, OEX, and XSP. I am actually probably going to eliminate all others except SPX because box spreads appear almost exclusively there. Out of the 150 spreads I've caught, only 4 were not on SPX. I'm only showing expirys that have 20+ data points and the majority appear to be sold on the Dec 2-3 years out:

Code: Select all

Sym Count
SPX 146
XSP 2  
NDX 1  
RUT 1  
adamhg
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

LoveTheBogle wrote: Fri Oct 22, 2021 9:45 pm How confident are you of the data?

Thanks for putting the time into this. Are you scraping the data or manually doing it?
Fxmove88 wrote: Sat Oct 23, 2021 12:31 am wow thank you for putting this on such a nice website. I can see my box transaction in October is accurately recorded in the website. Where did you get these data?
Data is coming from the stream data endpoint of one of my retail brokers. My original posts in this thread were based off Yahoo finance data, but I couldn't get very good granularity to match up trades that way because they only provide 1m bars. With the streaming data, I get ticks and trades down to the millisecond. I noticed that some trades appear to be reported as separate 2-leg spreads just a few ms apart, so I decided to truncate the ms and match based on the second the trades were reported.

The box spreads I caught I have a high level of confidence in. The main problem with the data is that the streaming API does not report 100% of trades, so I am likely missing some. If a lot of people find this useful, I think the historical tick data isn't _that_ expensive, but otherwise I could scale out to multiple accounts of streaming data and maybe also only focus on SPX
adamhg
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

LoveTheBogle wrote: Fri Oct 22, 2021 9:45 pm $140 MILlION single box today? Seems to be a major outlier.

How confident are you of the data?
cflannagan wrote: Fri Oct 22, 2021 10:06 pm Typo/glitch? I don't know much about box spreads, but strikes of 100-4000 doesn't look right.
I'm pretty confident in the spreads it does find, and you should be able confirm the trades on your platform of choice. Otherwise, this one in particular can kind of be seen on Yahoo finance as well. Their chart leaves a lot to be desired especially for the far OTM options, but the $100 legs can be seen on the options overview:

https://finance.yahoo.com/quote/%5ESPX/ ... 1702598400

note the 2021-10-22 12:46PM EDT timestamps and the call chart shows the price but not the volume. The put chart doesn't show the trade, but it does show in the link above

The $4000 legs can be seen in the chart, since they're a bit more liquid:

https://finance.yahoo.com/quote/SPX2312 ... QifX19fQ--
https://finance.yahoo.com/quote/SPX2312 ... QifX19fQ--

Notice the 12:46 prints for both with the 350 volume
crippledpig
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by crippledpig »

adamhg wrote: Fri Oct 22, 2021 4:22 pm I took a few days to put a website together so I didn't need to post every week. In case anybody else is interested, you can find my historical box spread data here: www.boxtrades.com

Welcome feedback for any changes or improvements
This is truly excellent. I think it will save a lot of us here the time and hassle of iterating to find a fair interest rate.
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

adamhg wrote: Sat Oct 23, 2021 11:16 am
LoveTheBogle wrote: Fri Oct 22, 2021 9:45 pm How confident are you of the data?

Thanks for putting the time into this. Are you scraping the data or manually doing it?
Fxmove88 wrote: Sat Oct 23, 2021 12:31 am wow thank you for putting this on such a nice website. I can see my box transaction in October is accurately recorded in the website. Where did you get these data?
Data is coming from the stream data endpoint of one of my retail brokers. My original posts in this thread were based off Yahoo finance data, but I couldn't get very good granularity to match up trades that way because they only provide 1m bars. With the streaming data, I get ticks and trades down to the millisecond. I noticed that some trades appear to be reported as separate 2-leg spreads just a few ms apart, so I decided to truncate the ms and match based on the second the trades were reported.

The box spreads I caught I have a high level of confidence in. The main problem with the data is that the streaming API does not report 100% of trades, so I am likely missing some. If a lot of people find this useful, I think the historical tick data isn't _that_ expensive, but otherwise I could scale out to multiple accounts of streaming data and maybe also only focus on SPX
Thank you for doing such excellent work. Please keep up the good work. Maybe just focus for the longest maturity.
Knowing this data helps us a lot in getting better interest rate.
Let's pull down the graph so that interest rate is going down.
I think it is very possible. I have done it for one of the accounts I manage.
We just need to be patient and to reduce our sell price a tick at a time and be patient, giving enough time for each tick.

https://www.vested.com.au/invest/strategies/leverage
Leveraging with such a low interest is good and it is being used by many hedge funds and rich people.
Use Other People's Money to grow your portfolio
Last edited by Fxmove88 on Sun Oct 24, 2021 5:07 am, edited 1 time in total.
Semantics
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Semantics »

Fxmove88 wrote: Fri Oct 22, 2021 10:21 pm
xerxes101 wrote: Sat Oct 09, 2021 8:57 am
So you mean after ones initiates the box spread position the margin requirements could change / increase? could you expand on this?
This is a real situation of margin changes announcement:

"There are upcoming changes to the margin algorithm that will affect all non-US stock derivative positions.
As of November 12, 2021, The Options Clearing Corporation (OCC) will discontinue the publishing of risk parameters for non-US stock derivatives. This means that all non-US stock derivatives will be subject to rule-based margin described here: US Options Margin Requirements ( LINK../index.php ).
That is slightly alarming. It's natural to assume it doesn't apply to $SPX, but the wording does not give confidence in that assumption, since $SPX is an index not a stock.
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

Semantics wrote: Sun Oct 24, 2021 1:08 am
Fxmove88 wrote: Fri Oct 22, 2021 10:21 pm
xerxes101 wrote: Sat Oct 09, 2021 8:57 am
So you mean after ones initiates the box spread position the margin requirements could change / increase? could you expand on this?
This is a real situation of margin changes announcement:

"There are upcoming changes to the margin algorithm that will affect all non-US stock derivative positions.
As of November 12, 2021, The Options Clearing Corporation (OCC) will discontinue the publishing of risk parameters for non-US stock derivatives. This means that all non-US stock derivatives will be subject to rule-based margin described here: US Options Margin Requirements ( LINK../index.php ).
That is slightly alarming. It's natural to assume it doesn't apply to $SPX, but the wording does not give confidence in that assumption, since $SPX is an index not a stock.
I assume it includes Index derivatives also.
I notice that for my ESTX Box requires an even higher margin after 28 Oct 2021. No changes for SPX Box.

ESTX Box is treated using Reg T Margin requirement going forward while SPX Box requires only menial margin requirement when we use Portfolio Margin (one needs to top up to USD110k equity at least in IBKR). Hence SPX Box is much more beneficial than ESTX Box.
nalor511
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by nalor511 »

Fxmove88 wrote: Sun Oct 24, 2021 2:02 am
Semantics wrote: Sun Oct 24, 2021 1:08 am
Fxmove88 wrote: Fri Oct 22, 2021 10:21 pm
xerxes101 wrote: Sat Oct 09, 2021 8:57 am
So you mean after ones initiates the box spread position the margin requirements could change / increase? could you expand on this?
This is a real situation of margin changes announcement:

"There are upcoming changes to the margin algorithm that will affect all non-US stock derivative positions.
As of November 12, 2021, The Options Clearing Corporation (OCC) will discontinue the publishing of risk parameters for non-US stock derivatives. This means that all non-US stock derivatives will be subject to rule-based margin described here: US Options Margin Requirements ( LINK../index.php ).
That is slightly alarming. It's natural to assume it doesn't apply to $SPX, but the wording does not give confidence in that assumption, since $SPX is an index not a stock.
I assume it includes Index derivatives also.
I notice that for my ESTX Box requires an even higher margin after 28 Oct 2021. No changes for SPX Box.

ESTX Box is treated as Reg T Margin going forward while SPX Box requires only menial margin requirement when we use Portfolio Margin (need to top up USD110k equity at least). Hence SPX Box is much more beneficial than ESTX Box.
This part seems capricious and over my head - it's these types of gotcha that make me leery. What variables could I be missing to pull the rug out from under this? Unknown
skierincolorado
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by skierincolorado »

nalor511 wrote: Sun Oct 24, 2021 2:04 am
Fxmove88 wrote: Sun Oct 24, 2021 2:02 am
Semantics wrote: Sun Oct 24, 2021 1:08 am
Fxmove88 wrote: Fri Oct 22, 2021 10:21 pm
xerxes101 wrote: Sat Oct 09, 2021 8:57 am
So you mean after ones initiates the box spread position the margin requirements could change / increase? could you expand on this?
This is a real situation of margin changes announcement:

"There are upcoming changes to the margin algorithm that will affect all non-US stock derivative positions.
As of November 12, 2021, The Options Clearing Corporation (OCC) will discontinue the publishing of risk parameters for non-US stock derivatives. This means that all non-US stock derivatives will be subject to rule-based margin described here: US Options Margin Requirements ( LINK../index.php ).
That is slightly alarming. It's natural to assume it doesn't apply to $SPX, but the wording does not give confidence in that assumption, since $SPX is an index not a stock.
I assume it includes Index derivatives also.
I notice that for my ESTX Box requires an even higher margin after 28 Oct 2021. No changes for SPX Box.

ESTX Box is treated as Reg T Margin going forward while SPX Box requires only menial margin requirement when we use Portfolio Margin (need to top up USD110k equity at least). Hence SPX Box is much more beneficial than ESTX Box.
This part seems capricious and over my head - it's these types of gotcha that make me leery. What variables could I be missing to pull the rug out from under this? Unknown
*IF* the rug is pulled out, you just go back to borrowing at 1.5% at IBKR and pay off the loan gradually if you don't like borrowing at 1.5%. The box spread is just a refi from 1.5% down to 0.7%. All you are doing is cutting out the middleman to get a more competitive rate.Both rates are set relative to LIBOR.
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

skierincolorado wrote: Sun Oct 24, 2021 2:24 am
nalor511 wrote: Sun Oct 24, 2021 2:04 am
This part seems capricious and over my head - it's these types of gotcha that make me leery. What variables could I be missing to pull the rug out from under this? Unknown
*IF* the rug is pulled out, you just go back to borrowing at 1.5% at IBKR and pay off the loan gradually if you don't like borrowing at 1.5%. The box spread is just a refi from 1.5% down to 0.7%. All you are doing is cutting out the middleman to get a more competitive rate.Both rates are set relative to LIBOR.
nalor511's concern is probably that IBKR may liquidate the box automatically by settling each leg one by one, which happened to one of the users from elite trader forum. That user suggested that we need to have a GTC order of buying back of the box at ridiculously high price coupled with "Liquidate Last" on all legs. I am not sure if that will work 100%. I just want to play safe that I should not exploit the margin to the max.

https://www.elitetrader.com/et/threads/ ... 64/page-11
bling
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by bling »

Fxmove88 wrote: Sun Oct 24, 2021 5:15 am
skierincolorado wrote: Sun Oct 24, 2021 2:24 am
nalor511 wrote: Sun Oct 24, 2021 2:04 am
This part seems capricious and over my head - it's these types of gotcha that make me leery. What variables could I be missing to pull the rug out from under this? Unknown
*IF* the rug is pulled out, you just go back to borrowing at 1.5% at IBKR and pay off the loan gradually if you don't like borrowing at 1.5%. The box spread is just a refi from 1.5% down to 0.7%. All you are doing is cutting out the middleman to get a more competitive rate.Both rates are set relative to LIBOR.
nalor511's concern is probably that IBKR may liquidate the box automatically by settling each leg one by one, which happened to one of the users from elite trader forum. That user suggested that we need to have a GTC order of buying back of the box at ridiculously high price coupled with "Liquidate Last" on all legs. I am not sure if that will work 100%. I just want to play safe that I should not exploit the margin to the max.

https://www.elitetrader.com/et/threads/ ... 64/page-11
i'm also afraid to pull the trigger due to these horror stories. on one hand, it's just some random person on the internet posting their side of the story. maybe they really were doing something extremely risky and IB's auto-liquidation algo did exactly what it was intended to do -- protect IBKR and its clients, which is us. on the other hand, maybe it really is bad in black swan events.

i think it was around 15-20 years ago where all the major ETFs, including big ones like VTI dropped like 99% in value for a couple seconds and then immediately went back up. well, if that were to happen again, what would IBKR do with all the box trades? even a modest 20% margin could be eligible to get auto liquidated by their rules if this were to happen again.

edit: actually, now that i think about it, if a flash crash happens, even normal margin loans are not safe. IBKR would be able to sell everything you have until you're back at 1:1, and that could be selling everything 99x cheaper....still catastrophic.
Last edited by bling on Sun Oct 24, 2021 11:39 am, edited 1 time in total.
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unclescrooge
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by unclescrooge »

bling wrote: Sun Oct 24, 2021 10:22 am
Fxmove88 wrote: Sun Oct 24, 2021 5:15 am
skierincolorado wrote: Sun Oct 24, 2021 2:24 am
nalor511 wrote: Sun Oct 24, 2021 2:04 am
This part seems capricious and over my head - it's these types of gotcha that make me leery. What variables could I be missing to pull the rug out from under this? Unknown
*IF* the rug is pulled out, you just go back to borrowing at 1.5% at IBKR and pay off the loan gradually if you don't like borrowing at 1.5%. The box spread is just a refi from 1.5% down to 0.7%. All you are doing is cutting out the middleman to get a more competitive rate.Both rates are set relative to LIBOR.
nalor511's concern is probably that IBKR may liquidate the box automatically by settling each leg one by one, which happened to one of the users from elite trader forum. That user suggested that we need to have a GTC order of buying back of the box at ridiculously high price coupled with "Liquidate Last" on all legs. I am not sure if that will work 100%. I just want to play safe that I should not exploit the margin to the max.

https://www.elitetrader.com/et/threads/ ... 64/page-11
i'm also afraid to pull the trigger due to these horror stories. on one hand, it's just some random person on the internet posting their side of the story. maybe they really were doing something extremely risky and IB's auto-liquidation algo did exactly what it was intended to do -- protect IBKR and its clients, which is us. on the other hand, maybe it really is bad in black swan events.

i think it was around 15-20 years ago where all the major ETFs, including big ones like VTI dropped like 99% in value for a couple seconds and then immediately went back up. well, if that were to happen again, what would IBKR do with all the box trades? even a modest 20% margin could be eligible to get auto liquidated by their rules if this were to happen again.
It was 2010.
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

Box Spreads are not risk free

Respond from an IBKR rep (IBj) in elite trader:
https://www.elitetrader.com/et/threads/ ... ory.63810/
I am still digesting at what he wrote.
Note: GPV (Gross Position Value). Any position in portfolio margin set up that exceeds 5% of total net liquidation value requires 100% margin. Some OTC and small cap/penny stocks also requires 100% margin (initial & maintenance). Non US stocks require higher margin than US stocks and so do high yield bonds and less liquid instruments.

"I would like to address some of the issues in principle and to clarify IB's approach to risk management.
* Box spreads are not risk free. They have interest risk, or in case of american style options, dividend and early assignment risk.
* US option margins are based on an antiquated strategy/rule based model that does not correctly identify interest risk
* IB's 50:1 gpv/netliq constraint is specifically designed to put a limit on the development of large positions in apparently risk-free strategies
* the gpv requirement measures position size, not position risk. The two metrics can be related, but in the case of box spreads position size vs risk is reasonably orthogonal.
* ANY portfolio that utilizes extreme leverage is risky.
* IB's boundary for risk/position compliance is clearly defined and sharply delineated. We don't have a fuzzy gray area. when an account violates one of the risk conditions (margin, regt, gpv, commodity delivery, etc), we make the account compliant.
* ANY liquidation is sub-optimal. We don't want to liquidate. It doesn't make for happy traders regardless of whether it is optimally handled or not. At the end of the day, people don't want others controlling their assets, positions, trades, etc. IB would far prefer that traders manage their own positions in an appropriately judicious way.
* All risk management perspectives caution against the use of extreme leverage. All advise against large concentrated positions. It takes just a small change in market conditions to put a highly leveraged portfolio into risk non-compliance.

For example:
1. lets consider an account with 46K in netliq and a gpv of 2.3M. The account holds short 1000 25-point boxes in some med-long dated european exercise US option. At a given (compliant) point in time, the box is worth (and is properly priced) at 23.
2. It is within the gpv 50:1 limit by a smidgen and there is plenty of excess liquidity for margin purposes as the entire position is in a box.
3. Now, due to marks on not-so-liquid contracts, the box gets a realtime value of 23.2. This doesn't take too much bad luck since there are 4 legs and the options have a bid-ask spread of 0.10-0.20 each leg.
4. The account's net liq gets hit for 0.20 on 1000 boxes, -2000 USD. With a new net liq of 44K, the maximum position value would be 2.2M so IB starts a close out process by submitting orders (automatically) in each of the 4 legs for positions worth 100K. So far, undesired but still OK.
5. The exchange market in each of the four options in the box get hit with market orders as liquidations are always market orders. This of course drives the prices even further against the position since closeouts always do. Quotes change and the new value of the box might be 23.4.
6. The process starts again and will continue until the market pricing stabilizes and absorbs the liquidation orders without further fading.

In the above example, had the account stayed at any leverage reasonably below the threshhold or was composed of a more diversified portfolio even at 50:1, the above scenario would have been largely avoided.

IB has manually supervised but automation implemented risk management principles. We avoid the problems of human oversight in our risk mgmt approach by structuring algorithms to measure risk and implement reduction policies. We do not offer time intensive, account specific hand-holding for regular situations. When something truly unusual arises that requires the analytcal skills available more in people than in systems, our risk mgmt team takes over.

IB has an autoliquidation model. We don't make margin calls and we don't let accounts promise to wire in money after the account is already in a deficit. This translates into lower losses to IB which in turn allows us to make the insurance component of our commission model minimal. People may not realize it, but there is an bad credit contribution implicit in all commission models and it is funded by clients on every trade. Indirectly, poor credit accounts are subsidized by quality accounts in the form of higher commissions. If we don't take the losses due to classics like "check's in the mail", we can continue to offer low commissions in a high-tech environment. Like driving a ferrari for VW prices."
adamhg
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

Fxmove88 wrote: Sun Oct 24, 2021 11:57 am Box Spreads are not risk free

Respond from an IBKR rep (IBj) in elite trader:
https://www.elitetrader.com/et/threads/ ... ory.63810/
I am still digesting at what he wrote.
Note: GPV (Gross Position Value). Any position in portfolio margin set up that exceeds 5% of total net liquidation value requires 100% margin. Some OTC and small cap/penny stocks also requires 100% margin (initial & maintenance). Non US stocks require higher margin than US stocks and so do high yield bonds and less liquid instruments.

"I would like to address some of the issues in principle and to clarify IB's approach to risk management.
* Box spreads are not risk free. They have interest risk, or in case of american style options, dividend and early assignment risk.
Their risks are a bit disingenuous. American options are easy to overcome with index options. Interest risk can never exceed max loss.
Last edited by adamhg on Sun Oct 24, 2021 8:29 pm, edited 2 times in total.
moneyflowin
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by moneyflowin »

IB's response assumes some reckless box writer who uses up almost all their available margin, and a tiny market move causes a margin call. That's not what we're concerned about.

We're concerned about a trader who uses margin conservatively and where a Flash Crash-like event causes B/A spreads to become enormous, causing a bogus margin call. I was at the computer during the Flash Crash and know exactly how wide B/A spreads got. IB hasn't addressed this scenario in their response probably because their auto-liq can't handle it.
calwatch
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by calwatch »

To be fair, that response from IBKR was also 15 years ago. Still, although I could open that position at IB, I chose to open it at Ameritrade because I know they won't pull those shenanigans. I'll trade paying 8% APR for a few days until I can reopen a box or sell my positions to avoid being auto liquidated through an unforgiving algorithm.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

moneyflowin wrote: Thu Oct 21, 2021 5:07 pm
Freebee34 wrote: Thu Oct 21, 2021 8:33 am
stay_the_course wrote: Wed Oct 20, 2021 10:42 pm Curious if anyone knows, since financing using box spreads seems to have been around for quite a while: historically what has the implied interest been on these usually? 2-3 year treasuries + 0.3/0.5 or something else? (granted of course that it might vary widely based on your fill)
I found the best executed rates to be treasuries +25 basis points. Treasuries +45 is more typical though. If you do a lot (500k+) you might be able to get it down to 15
I found the rate premium to correlate to duration. The yield curve on boxes is flatter than on Treasuries. In particular, there's a 32bp difference between 1Y and 2Y Treasuries recently, but hardly any difference for boxes of the same duration.

To get T+15bp, you'd need to trade in the multi-million dollar range.
Can you please give some examples for your assertion that the box rate premium decreases with duration? I got on average about 0.5% on short term boxes of a few months length, that's about 0.4% above the reference rate I think. stay_the_course in the post below yours got 0.75% for 2 years, that's about 0.3% above the 2y treasuries. But the question arises what is the reference rate? LIBOR, SOFR, treasury notes/bills, or something else?

Regarding your other assertion that huge trades get lower rates: Somebody reported a few posts down viewtopic.php?p=6289493#p6289493 that there was a $3.5 billion box at 0.4%. That rate is not far off from what I have been getting.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

Fxmove88 wrote: Sun Oct 24, 2021 2:02 am
Semantics wrote: Sun Oct 24, 2021 1:08 am
Fxmove88 wrote: Fri Oct 22, 2021 10:21 pm
xerxes101 wrote: Sat Oct 09, 2021 8:57 am
So you mean after ones initiates the box spread position the margin requirements could change / increase? could you expand on this?
This is a real situation of margin changes announcement:

"There are upcoming changes to the margin algorithm that will affect all non-US stock derivative positions.
As of November 12, 2021, The Options Clearing Corporation (OCC) will discontinue the publishing of risk parameters for non-US stock derivatives. This means that all non-US stock derivatives will be subject to rule-based margin described here: US Options Margin Requirements ( LINK../index.php ).
That is slightly alarming. It's natural to assume it doesn't apply to $SPX, but the wording does not give confidence in that assumption, since $SPX is an index not a stock.
I assume it includes Index derivatives also.
I notice that for my ESTX Box requires an even higher margin after 28 Oct 2021. No changes for SPX Box.

ESTX Box is treated using Reg T Margin requirement going forward while SPX Box requires only menial margin requirement when we use Portfolio Margin (one needs to top up to USD110k equity at least in IBKR). Hence SPX Box is much more beneficial than ESTX Box.
Would you mind sharing how drastic is the margin requirement change of the ESTX box with the Oct 28 risk model?
Freebee34
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Freebee34 »

comeinvest wrote: Mon Oct 25, 2021 3:21 am
moneyflowin wrote: Thu Oct 21, 2021 5:07 pm
Freebee34 wrote: Thu Oct 21, 2021 8:33 am
stay_the_course wrote: Wed Oct 20, 2021 10:42 pm Curious if anyone knows, since financing using box spreads seems to have been around for quite a while: historically what has the implied interest been on these usually? 2-3 year treasuries + 0.3/0.5 or something else? (granted of course that it might vary widely based on your fill)
I found the best executed rates to be treasuries +25 basis points. Treasuries +45 is more typical though. If you do a lot (500k+) you might be able to get it down to 15
I found the rate premium to correlate to duration. The yield curve on boxes is flatter than on Treasuries. In particular, there's a 32bp difference between 1Y and 2Y Treasuries recently, but hardly any difference for boxes of the same duration.

To get T+15bp, you'd need to trade in the multi-million dollar range.
Can you please give some examples for your assertion that the box rate premium decreases with duration? I got on average about 0.5% on short term boxes of a few months length, that's about 0.4% above the reference rate I think. stay_the_course in the post below yours got 0.75% for 2 years, that's about 0.3% above the 2y treasuries. But the question arises what is the reference rate? LIBOR, SOFR, treasury notes/bills, or something else?

Regarding your other assertion that huge trades get lower rates: Somebody reported a few posts down viewtopic.php?p=6289493#p6289493 that there was a $3.5 billion box at 0.4%. That rate is not far off from what I have been getting.
I believe that number is an error. I used to work on am options MM desk never saw anyone come close to that size. Exchange traded stuff usually tops out at $100 million maybe $200. Things that big are handled in the otc swaps market as the mark to market variation alone is over $100 million.
bling
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by bling »

calwatch wrote: Sun Oct 24, 2021 8:56 pm To be fair, that response from IBKR was also 15 years ago. Still, although I could open that position at IB, I chose to open it at Ameritrade because I know they won't pull those shenanigans. I'll trade paying 8% APR for a few days until I can reopen a box or sell my positions to avoid being auto liquidated through an unforgiving algorithm.
yes, slightly annoyed that i moved a ton of money over to IBKR to get the low margin rates, and now i have to move them back to other brokers just to avoid black swans with box spreads.
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

comeinvest wrote: Mon Oct 25, 2021 3:38 am
Would you mind sharing how drastic is the margin requirement change of the ESTX box with the Oct 28 risk model?
Additional $400 in margin requirement and I have only Euro20k box.
Selling ESTX box was already treated like in Reg T margin for me in early October. Portfolio Margin set up has no effect for ESTX Box.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

Fxmove88 wrote: Mon Oct 25, 2021 11:01 am
comeinvest wrote: Mon Oct 25, 2021 3:38 am
Would you mind sharing how drastic is the margin requirement change of the ESTX box with the Oct 28 risk model?
Additional $400 in margin requirement and I have only Euro20k box.
Selling ESTX box was already treated like in Reg T margin for me in early October. Portfolio Margin set up has no effect for ESTX Box.
I'm not very familiar yet with the nuances and technicalities of portfolio margin and Reg T margin, but I think as was mentioned earlier in this thread, ESTX boxes at IB were always independent of box size (as in difference between strike prices), i.e. not really dependent on actual risk. I'm not sure if this mean Reg T was always used. If so, not difference to before?

The question arises why does IB not price ESTX box margin requirements on risk? Is this a regulatory thing? Also, what is the role of the OCC for Eurex options?
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outofthebox
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by outofthebox »

Fxmove88 wrote: Mon Oct 25, 2021 11:01 am Additional $400 in margin requirement and I have only Euro20k box.
Selling ESTX box was already treated like in Reg T margin for me in early October. Portfolio Margin set up has no effect for ESTX Box.
Just to verify that I understand you right (unfortunately I can not use TWS at the moment because I have no access to my PC for the next few days):

For your 20.000 € credit, the margin overnight requirement will be raised by about 400 €?
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

comeinvest wrote: Mon Oct 25, 2021 12:24 pm I'm not very familiar yet with the nuances and technicalities of portfolio margin and Reg T margin, but I think as was mentioned earlier in this thread, ESTX boxes at IB were always independent of box size (as in difference between strike prices), i.e. not really dependent on actual risk. I'm not sure if this mean Reg T was always used. If so, not difference to before?

The question arises why does IB not price ESTX box margin requirements on risk? Is this a regulatory thing? Also, what is the role of the OCC for Eurex options?
I guess IB is ahead of the OCC requirement by treating full margin for ESTX Box. So the changes by OCC on 28 Oct means little changes to ESTX Box traded at IB (only an increase of USD400 in additional margin requirement)

For SPX Box on the other hand when shorted in Portfolio Margin set up requires very little margin vs full margin, as much as the size of the box, in a Reg T setup.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

Fxmove88 wrote: Mon Oct 25, 2021 5:24 pm
comeinvest wrote: Mon Oct 25, 2021 12:24 pm I'm not very familiar yet with the nuances and technicalities of portfolio margin and Reg T margin, but I think as was mentioned earlier in this thread, ESTX boxes at IB were always independent of box size (as in difference between strike prices), i.e. not really dependent on actual risk. I'm not sure if this mean Reg T was always used. If so, not difference to before?

The question arises why does IB not price ESTX box margin requirements on risk? Is this a regulatory thing? Also, what is the role of the OCC for Eurex options?
I guess IB is ahead of the OCC requirement by treating full margin for ESTX Box. So the changes by OCC on 28 Oct means little changes to ESTX Box traded at IB (only an increase of USD400 in additional margin requirement)

For SPX Box on the other hand when shorted in Portfolio Margin set up requires very little margin vs full margin, as much as the size of the box, in a Reg T setup.
I'm still confused. What's your definition of "full margin", and what is the difference between "full margin" and "Reg T margin"? Are the margin requirements of ESTX boxes governed by Reg T, by OCC, by Eurex and their regulators, or are they just set by IB? That's the puzzle that confuses me.
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

I have tried shorting other currency boxes on my paper account: Euro (CAC40, DJSD, ETX50 Box), GBP (Z Box), SEK (OSMX530 Box). I have yet succeeded in shorting SMI Box to get the CHF since I want to buy some Swiss stocks.

Has anyone else tried other currency boxes? AUD? JPY? SGD?
Last edited by Fxmove88 on Mon Oct 25, 2021 6:42 pm, edited 1 time in total.
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

comeinvest wrote: Mon Oct 25, 2021 5:51 pm
Fxmove88 wrote: Mon Oct 25, 2021 5:24 pm
comeinvest wrote: Mon Oct 25, 2021 12:24 pm I'm not very familiar yet with the nuances and technicalities of portfolio margin and Reg T margin, but I think as was mentioned earlier in this thread, ESTX boxes at IB were always independent of box size (as in difference between strike prices), i.e. not really dependent on actual risk. I'm not sure if this mean Reg T was always used. If so, not difference to before?

The question arises why does IB not price ESTX box margin requirements on risk? Is this a regulatory thing? Also, what is the role of the OCC for Eurex options?
I guess IB is ahead of the OCC requirement by treating full margin for ESTX Box. So the changes by OCC on 28 Oct means little changes to ESTX Box traded at IB (only an increase of USD400 in additional margin requirement)

For SPX Box on the other hand when shorted in Portfolio Margin set up requires very little margin vs full margin, as much as the size of the box, in a Reg T setup.
I'm still confused. What's your definition of "full margin", and what is the difference between "full margin" and "Reg T margin"? Are the margin requirements of ESTX boxes governed by Reg T, by OCC, by Eurex and their regulators, or are they just set by IB? That's the puzzle that confuses me.
I am not an expert on margin calculations but it looks like margin calculations is based on someone’s residency. Even IBKR reps have not been able to explain it well to me; they keep on referring to their equally confusing FAQ.

I use the term full margin in the context if you borrow Euro10k using ETX50 Box then IBKR will earmark the full amount of Euro10k in your overall portfolio to guarantee shorting the box. Perhaps this is not so for someone residing in Europe using PM set up.

whereas say if you borrow USD50k using SPX, the earmarking on your portfolio is only a few hundred dollars in a PM setup. If you are on Reg T setup the earmarking is for the full amount of USD50K. Hence for me in PM set up, I am able to leverage more by using SPX box rather than ESTX’s.

Hope that helps explain.

ps I cant upload screenshots of my paper account but you can try it for yourself by putting various currency boxes on your watchlist and it will show all the margin requirements.
Last edited by Fxmove88 on Mon Oct 25, 2021 6:57 pm, edited 1 time in total.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

Fxmove88 wrote: Mon Oct 25, 2021 6:19 pm
comeinvest wrote: Mon Oct 25, 2021 5:51 pm
Fxmove88 wrote: Mon Oct 25, 2021 5:24 pm
comeinvest wrote: Mon Oct 25, 2021 12:24 pm I'm not very familiar yet with the nuances and technicalities of portfolio margin and Reg T margin, but I think as was mentioned earlier in this thread, ESTX boxes at IB were always independent of box size (as in difference between strike prices), i.e. not really dependent on actual risk. I'm not sure if this mean Reg T was always used. If so, not difference to before?

The question arises why does IB not price ESTX box margin requirements on risk? Is this a regulatory thing? Also, what is the role of the OCC for Eurex options?
I guess IB is ahead of the OCC requirement by treating full margin for ESTX Box. So the changes by OCC on 28 Oct means little changes to ESTX Box traded at IB (only an increase of USD400 in additional margin requirement)

For SPX Box on the other hand when shorted in Portfolio Margin set up requires very little margin vs full margin, as much as the size of the box, in a Reg T setup.
I'm still confused. What's your definition of "full margin", and what is the difference between "full margin" and "Reg T margin"? Are the margin requirements of ESTX boxes governed by Reg T, by OCC, by Eurex and their regulators, or are they just set by IB? That's the puzzle that confuses me.
I am not an expert on margin calculations but it looks like margin calculations is based on someone’s residency. Even IBKR reps have not been able to explain it well to me; they keep on referring to their equally confusing FAQ.

I use the term full margin in the context if you borrow Euro10k using ETX50 Box then IBKR will earmark the full amount of Euro10k in your overall portfolio to guarantee shorting the box. Perhaps this is not so for someone residing in Europe using PM set up.

whereas say if you borrow USD50k using SPX, the earmarking on your portfolio is only a few hundred dollars in a PM setup. If you are on Reg T setup the earmarking is for the full amount of USD50K. Hence for me in PM set up, I am able to leverage more by using SPX box rather than ESTX’s.

Hope that helps explain.
But you said in your post above "I guess IB is ahead of the OCC requirement by treating full margin for ESTX Box. So the changes by OCC on 28 Oct means little changes to ESTX Box traded at IB (only an increase of USD400 in additional margin requirement)." - I think we agree that "full margin" by your definition would render boxes useless. But you said you only experienced a USD400 addition margin requirement for your 20k Euro box. I assume you didn't mean your margin for the box went from 19600 to 20k (full margin), as you are still maintaining your box. If not, then IB doesn't charge "full margin" with their Oct 28 change.

"As of November 12, 2021, The Options Clearing Corporation (OCC) will discontinue the publishing of risk parameters for non-US stock derivatives. This means that all non-US stock derivatives will be subject to rule-based margin described here: US Options Margin Requirements ( LINK../index.php )." - not sure if "rule-based margin" is equivalent to "Reg T margin", and "risk-based margin" is equivalent to "portfolio margin". Maybe someone more knowledgeable can clarify this.
Punter
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Punter »

Thank you all for the useful thread. Like some others I discovered boxes after deciding to employ lifecycle investing. After some investigation and experimentation, I think Boxes are probably the best source of leverage (also looked into deep in the money "LEAP" calls, futures and regular margin)
  • Cheapest (on par with futures)
  • Easiest to manage (no future rolling or managing of option leverage ratios, separated financing and investment transactions)
  • No dividend risk
  • Ability to support a diversified portfolio (futures and LEAPs are really only viable on US and Europe)
  • Allows for smaller portfolio building via ETFs (vs futures or options where the minimum trade is $20k - $40k)
Have I missed anything?

Others have advocated for LEAPS, but I think there is a often a fundamental flaw in the maths presented. Using DITM calls, you lose dividends on 100% of the exposure to get say ~50% leverage. If the expected dividend yield is 2% and the implied cost (strike + option price) is equal to the current index level, its actually an effective 4% marginal financing rate vs an unlevered portfolio.

Regarding boxes on ESTX50, I'm Australian and get risk based margin for these. But I think there is a question around what currency you want your debt to be denominated in to best manage a drawdown. AUD makes sense for me as it reliably depreciates when there is a stock market fall and is the currency of my income / emergency savings. In which case, may as well only use the SPX and sell corresponding AUDUSD futures as you pay away the base rate differential in the hedge anyway. Even better would be boxes on the ASX200 but I don't think there is a market.

Finally, great website @adamhg . I will make sure to check it next time, definitely some room for improvement on my first box! (4400 - 4200 Sep 22 @ 0.65%)
Last edited by Punter on Mon Oct 25, 2021 11:50 pm, edited 1 time in total.
spiyer99
Posts: 6
Joined: Sun Apr 26, 2020 6:42 am

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

Post by spiyer99 »

Not sure if this has been covered before, but what do people think of this? https://www.greaterwrong.com/posts/8NSK ... tly-faster

The author talks about using a box spread in a CD. "After taxes and commissions, this increases annual returns on your entire portfolio by 0.2-0.5%, nearly risk-free." Is it really worth the risk though?

PS: long time lurker, first time poster.
Last edited by spiyer99 on Tue Oct 26, 2021 2:31 am, edited 2 times in total.
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