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

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
comeinvest
Posts: 2709
Joined: Mon Mar 12, 2012 6:57 pm

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

Post by comeinvest »

gougou wrote: Sun Dec 19, 2021 5:10 pm
comeinvest wrote: Sun Dec 19, 2021 3:29 pm
Fxmove88 wrote: Fri Dec 17, 2021 10:19 pm One of the forgotten facts of the use of Boxes is to prevent your brokers from rehypothecating your shares when you borrow money with margin. Fund managers dislike their shareholding being rehypothecated and that's why they borrow money through box spread.
Rehypothecated shares that pay dividend will generate Payment in Lieu of Dividends which resulted the dividend is treated like a regular income for tax purposes.

I just discover to my dismay that I borrow a small amount of GBP87 through margin, but this has resulted IBKR lending about GBP4,600. of my shares and certainly not share any fees from it, creating a tax liability from its Payment in Lieu of Dividends. IBKR is at free will to choose whichever shares they can lend out and make profit out of it. The more variety of shares you have the more likelihood your shares are being rehypothecated.

In general I am warry of shares rehypothecation and would prefer borrowing using box. Rehypothecated shares may run a risk of not being unaccounted especially during the time when the broker/counterparty is going through bankruptcy situation.
You will be disappointed. I thought the same as you, until I discovered that box spreads allow the broker to lend your shares. The math and terminology are complex, and I forgot the details, but the end result is that if you have high enough leverage through box spreads, IB will lend all your shares just like they do if you use margin. Only futures don't result in lending shares. Unlike most other major brokers, IB does not get your shares back on the ex-dates, and does not reimburse you for the tax disadvantage if they lend your shares through the ex-date, like most other major brokers do. I personally like the IB platform a lot, but this is the major issue that makes me think about moving part of my portfolio to Schwab. Schwab broker margin rates would be prohibitive, but box spreads eliminate the need for broker margin. Box spreads are the greatest invention since sliced bread.
I have some Box Spread leverage on my MLP portfolio and IB hasn’t been lending out my units. It looks like I should pay more attention to my account statements especially around the ex-dividend dates. Do you know what leverage is considered “high enough leverage”? I borrow at most 20% of my NAV to buy the dips and I pay them off overtime and I haven’t seen any security lending activity or “cash in lieu”. If my MLP distributions become cash in lieu I’ll be royally pissed.

Schwab doesn’t have Portfolio Margin so it’s risky to even borrow a small amount with them. I heard TDAmeritrade has Portfolio Margin but I’ve never used them.
As you probably know, if and when your securities are lent out is unpredictable and random. Rest assured, I thought the same as Fxmove88 until I discovered that I got payments in lieu although for extended periods i.e. covering the ex-dates, I had positive cash balances in all currencies. Several customer service chats later, and reading the help pages on IB, revealed the unfortunate truth. The broker industry made sure they get their cut. I think these rules are specific to the U.S. and seem arbitrary not to say nonsensical, but then again maybe we should be happy because I think in most other places in the world there is no retail access to futures and options anywhere near as convenient as here in the U.S. in the first place.

If Schwab doesn't offer Portfolio Margin, then I think Schwab is not an option. I think skierincolorado (participant in this thread) successfully uses boxes in non-portfolio margin accounts, but I think it's a major hassle with SMA (?) and much less leverage i.e. you have to de-leverage much earlier. I think for those who otherwise like IB, TradeStation might be the next best option, but I don't know if they have portfolio margin, or how they handle securities lending and payments-in-lieu.

I personally generally dislike Schwab and TD Ameritrade and much prefer IB as they give much more control over trading and offer a much larger range of products including international, but maybe a TD Ameritrade account is in order so to avoid payments in lieu. I have already Schwab for my cash and checking needs, so I would hate to have an account with yet another brokerage. Also, I hear that Schwab and TD Ameritrade (already merged) will merge their products eventually, so I guess there is a risk that they discontinue portfolio margin.
Last edited by comeinvest on Mon Jan 03, 2022 4:38 am, edited 1 time in total.
calwatch
Posts: 1447
Joined: Wed Oct 02, 2013 1:48 am

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

Post by calwatch »

gougou wrote: Sun Dec 19, 2021 5:10 pm Schwab doesn’t have Portfolio Margin so it’s risky to even borrow a small amount with them. I heard TDAmeritrade has Portfolio Margin but I’ve never used them.
You have to take a brief quiz but Ameritrade does have portfolio margin and my box positions are all through them.
richardm
Posts: 49
Joined: Mon Nov 20, 2017 6:42 pm

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

Post by richardm »

Regarding box spreads on non-PM accounts: I stated earlier that selling boxes in a non-PM TDAmeritrade account reduces buying power on a 1:1 basis vs the credit obtained from the box. This statement was incorrect.

I'm looking at my non-PM account right now. I've sold multiple boxes with a sum credit of approx. $88k and the attendant buying power reduction is approx. $140k. I don't know how it's calculating this but there it is, FWIW.

Selling boxes in a Reg-T account is useful; just not as useful as with PM. I've put most of this $88k into NUSI/QYLD/JEPI/DIVO and little into MLPs. I pick up beer money on the divvys plus I get to buy back these boxes with future [debased] dollars. I'm for it.
comeinvest
Posts: 2709
Joined: Mon Mar 12, 2012 6:57 pm

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

Post by comeinvest »

richardm wrote: Mon Dec 20, 2021 1:33 pm Regarding box spreads on non-PM accounts: I stated earlier that selling boxes in a non-PM TDAmeritrade account reduces buying power on a 1:1 basis vs the credit obtained from the box. This statement was incorrect.

I'm looking at my non-PM account right now. I've sold multiple boxes with a sum credit of approx. $88k and the attendant buying power reduction is approx. $140k. I don't know how it's calculating this but there it is, FWIW.

Selling boxes in a Reg-T account is useful; just not as useful as with PM. I've put most of this $88k into NUSI/QYLD/JEPI/DIVO and little into MLPs. I pick up beer money on the divvys plus I get to buy back these boxes with future [debased] dollars. I'm for it.
Shouldn't the buying power reduction be less than $88k, even if it's bigger than +-0 ? (For portfolio margin it's close to zero.)
richardm
Posts: 49
Joined: Mon Nov 20, 2017 6:42 pm

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

Post by richardm »

comeinvest wrote: Mon Dec 20, 2021 2:11 pm Shouldn't the buying power reduction be less than $88k, even if it's bigger than +-0 ? (For portfolio margin it's close to zero.)
I think I've figured it out. I fired up the desktop ToS and did an "explain margin" and it's showing all kinds of goofiness.

Reality: I have five square and balanced short boxes with a mix of strikes and DTEs.

What ToS thinks: Explain Margin is showing 3x short boxes, 3x credit spread with calls, 2x credit spread with puts, and 2x short unbalanced iron condors.

Speculative explanation: It's not grouping the positions correctly because I've sold boxes with legs that have overlapping strikes (but different expirations).

One of my boxes is a small experiment for $2500 (strikes at 4475/4500). The 4500 strike overlaps with legs from of two of my other boxes. Tomorrow I'll close this small box and see if it untangles any of this mess and the effect on my buying power. If it helps then I'll reach out to TDA and see if they can untangle the remaining. I don't mind closing the $2500 box but the rest are for $>=20k each and the rolling them to alter their strikes would sting a little (because bid/ask spread).

Edit: Box inventory, for the curious. I've just realized the 4800 strikes also have an overlap across box 2 and box 5:

Box 1: 4475/4500 724dte
Box 2: 4600/4800 724dte
Box 3: 4500/4700 1095dte
Box 4: 4000/4200 1459dte
Box 5: 4500/4800 1459dte
impatientInv
Posts: 349
Joined: Fri Sep 03, 2021 1:26 pm

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

Post by impatientInv »

impatientInv wrote: Thu Dec 16, 2021 10:39 am Schwab doesn't allow box spreads credit to be used for trading in an IRA.

Does IBKR allow this in an IRA?

Does Merrill allow this in a non-IRA account?
Schwab DOESNOT allows this in taxable brokerage account

Merrill Edge doesn't allow it anywhere, not even in taxable brokerage account.
Last edited by impatientInv on Tue Dec 21, 2021 11:29 am, edited 1 time in total.
No individual stocks.
adamhg
Posts: 218
Joined: Sat Apr 10, 2021 8:40 am

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

Post by adamhg »

impatientInv wrote: Mon Dec 20, 2021 4:14 pm
impatientInv wrote: Thu Dec 16, 2021 10:39 am Schwab doesn't allow box spreads credit to be used for trading in an IRA.

Does IBKR allow this in an IRA?

Does Merrill allow this in a non-IRA account?
Schwab allows this in brokerage account, NOT in IRA.

Merrill Edge doesn't allow it anywhere, not even in taxable brokerage account.

Not sure if IBKR allows this in IRA.
What would be the use case for selling a box in an ira? You can't use margin, so I can't see a reason to sell a box. Buying one on the other hand might make sense in some cases if the alternative was cash or treasuries.
comeinvest
Posts: 2709
Joined: Mon Mar 12, 2012 6:57 pm

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

Post by comeinvest »

richardm wrote: Mon Dec 20, 2021 3:46 pm
comeinvest wrote: Mon Dec 20, 2021 2:11 pm Shouldn't the buying power reduction be less than $88k, even if it's bigger than +-0 ? (For portfolio margin it's close to zero.)
I think I've figured it out. I fired up the desktop ToS and did an "explain margin" and it's showing all kinds of goofiness.

Reality: I have five square and balanced short boxes with a mix of strikes and DTEs.

What ToS thinks: Explain Margin is showing 3x short boxes, 3x credit spread with calls, 2x credit spread with puts, and 2x short unbalanced iron condors.

Speculative explanation: It's not grouping the positions correctly because I've sold boxes with legs that have overlapping strikes (but different expirations).

One of my boxes is a small experiment for $2500 (strikes at 4475/4500). The 4500 strike overlaps with legs from of two of my other boxes. Tomorrow I'll close this small box and see if it untangles any of this mess and the effect on my buying power. If it helps then I'll reach out to TDA and see if they can untangle the remaining. I don't mind closing the $2500 box but the rest are for $>=20k each and the rolling them to alter their strikes would sting a little (because bid/ask spread).

Edit: Box inventory, for the curious. I've just realized the 4800 strikes also have an overlap across box 2 and box 5:

Box 1: 4475/4500 724dte
Box 2: 4600/4800 724dte
Box 3: 4500/4700 1095dte
Box 4: 4000/4200 1459dte
Box 5: 4500/4800 1459dte
If they can't assemble boxes, or at least go by the order in which you bought them, it would render their platform nearly useless for box aficionados. But I am still not comprehending your statement, as I think nothing that you buy should reduce your buying power by more than its value.
richardm
Posts: 49
Joined: Mon Nov 20, 2017 6:42 pm

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

Post by richardm »

comeinvest wrote: Tue Dec 21, 2021 12:56 am If they can't assemble boxes, or at least go by the order in which you bought them, it would render their platform nearly useless for box aficionados. But I am still not comprehending your statement, as I think nothing that you buy should reduce your buying power by more than its value.
Yeah, I think it's pathological and likely a bug. Let me close that first box today and see what happens.

I'll speculate the margin/bp calc algo is completely different for PM and probably isn't broken like this -- someone would've noticed by now.

Update: Box #1 bought-to-close at a cost of $2,465. Option buying power jumped up by $20k; stock buying power increased by $40k. ToS Explain Margin now thinks I have 3x short box spreads (same as before), 1x credit spread with calls (down from 3x), 1x credit spread with puts (down from 2x), and 1x short unbalanced iron condor (down from 2x).

This confirms my suspicion that TDA isn't pairing up the legs properly. I'll reach out to them.

Update 2: Explain Margin is double-counting four of these legs. I have 16 legs but Explain Margin shows 20.
impatientInv
Posts: 349
Joined: Fri Sep 03, 2021 1:26 pm

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

Post by impatientInv »

impatientInv wrote: Mon Dec 20, 2021 4:14 pm
impatientInv wrote: Thu Dec 16, 2021 10:39 am Schwab doesn't allow box spreads credit to be used for trading in an IRA.

Does IBKR allow this in an IRA?

Does Merrill allow this in a non-IRA account?
Schwab DOESNOT allows this in taxable brokerage account

Merrill Edge doesn't allow it anywhere, not even in taxable brokerage account.
Schwab and Merrill Edge donot allow box spreads.
No individual stocks.
richardm
Posts: 49
Joined: Mon Nov 20, 2017 6:42 pm

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

Post by richardm »

impatientInv wrote: Tue Dec 21, 2021 11:30 am Schwab and Merrill Edge donot allow box spreads.
Given that Schwab and TD Ameritrade are hellbent on combining the worst aspects of the two brokerages as they move forward with their merger, I suspect we can add TD Ameritrade to the "does not allow" list someday soon.
comeinvest
Posts: 2709
Joined: Mon Mar 12, 2012 6:57 pm

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

Post by comeinvest »

richardm wrote: Tue Dec 21, 2021 11:39 am
impatientInv wrote: Tue Dec 21, 2021 11:30 am Schwab and Merrill Edge donot allow box spreads.
Given that Schwab and TD Ameritrade are hellbent on combining the worst aspects of the two brokerages as they move forward with their merger, I suspect we can add TD Ameritrade to the "does not allow" list someday soon.
What choices are left except IB? I like IB, except the securities lending and payments-in-lieu. Is anybody using TradeStation?

Also, what if I build my taxable leveraged portfolio with box spreads, and IB falters like they disallow box spreads, what are the possible backup options to move to?
km91
Posts: 1390
Joined: Wed Oct 13, 2021 12:32 pm

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

Post by km91 »

impatientInv wrote: Thu Dec 16, 2021 10:39 am
Does IBKR allow this in an IRA?
Yes, but it needs to be 100% cash collateralized which defeats the purpose
cheerfulcharlie
Posts: 78
Joined: Sat Jul 27, 2019 3:22 pm

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

Post by cheerfulcharlie »

The Big ERN recently posted an in-depth explanation of box spreads and even the exact mechanics of how to execute one (along with the important warnings and pitfalls) here: https://earlyretirementnow.com/2021/12/ ... ox-spread/

Mess up one little thing and you could be out 5 figures just like that. As he says, not for the feint of heart.
calwatch
Posts: 1447
Joined: Wed Oct 02, 2013 1:48 am

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

Post by calwatch »

comeinvest wrote: Tue Dec 21, 2021 4:26 pm
richardm wrote: Tue Dec 21, 2021 11:39 am
impatientInv wrote: Tue Dec 21, 2021 11:30 am Schwab and Merrill Edge donot allow box spreads.
Given that Schwab and TD Ameritrade are hellbent on combining the worst aspects of the two brokerages as they move forward with their merger, I suspect we can add TD Ameritrade to the "does not allow" list someday soon.
What choices are left except IB? I like IB, except the securities lending and payments-in-lieu. Is anybody using TradeStation?

Also, what if I build my taxable leveraged portfolio with box spreads, and IB falters like they disallow box spreads, what are the possible backup options to move to?
Earlier in the thread I showed how to do it in Fidelity. I don't have enough assets there so have no way of executing it myself.
moneyflowin
Posts: 287
Joined: Sat Oct 16, 2021 6:14 am

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

Post by moneyflowin »

impatientInv wrote: Tue Dec 21, 2021 11:30 am
impatientInv wrote: Mon Dec 20, 2021 4:14 pm
impatientInv wrote: Thu Dec 16, 2021 10:39 am Schwab doesn't allow box spreads credit to be used for trading in an IRA.

Does IBKR allow this in an IRA?

Does Merrill allow this in a non-IRA account?
Schwab DOESNOT allows this in taxable brokerage account

Merrill Edge doesn't allow it anywhere, not even in taxable brokerage account.
Schwab and Merrill Edge donot allow box spreads.
User "semantics" said on 3/30/21 that s/he traded box spreads at Schwab. Is this a recent change? How do you know they don't allow box spreads?
Kbg
Posts: 355
Joined: Thu Mar 23, 2017 11:33 am

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

Post by Kbg »

comeinvest wrote: Tue Dec 21, 2021 4:26 pm
richardm wrote: Tue Dec 21, 2021 11:39 am
impatientInv wrote: Tue Dec 21, 2021 11:30 am Schwab and Merrill Edge donot allow box spreads.
Given that Schwab and TD Ameritrade are hellbent on combining the worst aspects of the two brokerages as they move forward with their merger, I suspect we can add TD Ameritrade to the "does not allow" list someday soon.
What choices are left except IB? I like IB, except the securities lending and payments-in-lieu. Is anybody using TradeStation?

Also, what if I build my taxable leveraged portfolio with box spreads, and IB falters like they disallow box spreads, what are the possible backup options to move to?
Maybe I'm missing something, but you can opt out of IB lending your shares out.
comeinvest
Posts: 2709
Joined: Mon Mar 12, 2012 6:57 pm

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

Post by comeinvest »

Kbg wrote: Tue Dec 21, 2021 11:55 pm
comeinvest wrote: Tue Dec 21, 2021 4:26 pm
richardm wrote: Tue Dec 21, 2021 11:39 am
impatientInv wrote: Tue Dec 21, 2021 11:30 am Schwab and Merrill Edge donot allow box spreads.
Given that Schwab and TD Ameritrade are hellbent on combining the worst aspects of the two brokerages as they move forward with their merger, I suspect we can add TD Ameritrade to the "does not allow" list someday soon.
What choices are left except IB? I like IB, except the securities lending and payments-in-lieu. Is anybody using TradeStation?

Also, what if I build my taxable leveraged portfolio with box spreads, and IB falters like they disallow box spreads, what are the possible backup options to move to?
Maybe I'm missing something, but you can opt out of IB lending your shares out.
No, you can't opt out if you use broker's margin OR borrow money via options (like box spreads).
comeinvest
Posts: 2709
Joined: Mon Mar 12, 2012 6:57 pm

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

Post by comeinvest »

impatientInv wrote: Tue Dec 21, 2021 11:30 am
impatientInv wrote: Mon Dec 20, 2021 4:14 pm
impatientInv wrote: Thu Dec 16, 2021 10:39 am Schwab doesn't allow box spreads credit to be used for trading in an IRA.

Does IBKR allow this in an IRA?

Does Merrill allow this in a non-IRA account?
Schwab DOESNOT allows this in taxable brokerage account

Merrill Edge doesn't allow it anywhere, not even in taxable brokerage account.
Schwab and Merrill Edge donot allow box spreads.
I don't mean to prove you wrong, but as I already have a Schwab account for checking account purposes, merely out of curiosity I tried creating a box spread. I entered a $10k spread, 4000-4100 SPX in StreetSmartCentral. (You can go to StreetSmartCentral from the home page after logging in.)
I have nothing in the account except $6,182.03 cash, which obviously means I have a Reg T account.
The Preview window says:
New Stock Buying Power: $12,364.06
New Option Buying Power: $6,182.03
My current "stock buying power" and "options buying power", displayed under "Balances" on the same screen, are exactly the same values.

To better understand Schwab's lingo, I entered a BUY 10 SPY shares order, limit 463.
The Preview window says:
Estimated Order: $4,630
New Stock Buying Power: $7,734.06
New Option Buying Power: $3,867.03

Now I'm more confused than before.
1. The first experiment suggests that Schwab allows box spreads, doesn't it? It further suggests that there is zero change in buying power with the box spread, which means I can use it e.g. to buy stocks, doesn't it?
2. The second experiment suggests that SPY has 100% margin requirement at Schwab???

If anybody who ever traded with Schwab could help me please.
Last edited by comeinvest on Wed Dec 22, 2021 12:47 pm, edited 1 time in total.
calwatch
Posts: 1447
Joined: Wed Oct 02, 2013 1:48 am

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

Post by calwatch »

comeinvest wrote: Wed Dec 22, 2021 4:10 am I don't mean to prove you wrong, but as I already have a Schwab account for checking account purposes, merely out of curiosity I tried creating a box spread. I entered a $10k spread, 4000-4100 SPX in StreetSmartCentral. (You can go to StreetSmartCentral from the home page after logging in.)
I have nothing in the account except $6,182.03 cash, which obviously means I have a Reg T account.
The Preview window says:
New Stock Buying Power: $12,364.06
New Option Buying Power: $6,182.03
My current "stock buying power" and "options buying power", displayed under "Balances" on the same screen, are exactly the same values.

To better understand Schwab's lingo, I entered a BUY 10 SPY shares order, limit 463.
The Preview window says:
Estimated Order: $4,630
New Stock Buying Power: $7,734.06
New Option Buying Power: $3,867.03

Now I'm more confused than before.
1. The first experiment suggests that Schwab allows box spreads, doesn't it? It further suggests that there is zero change in buying power with the box spread, which means I can use it e.g. to buy stocks, doesn't it?
2. The second experiment suggests that SPY has 100% margin requirement at Schwab???

If anybody who ever traded with Schwab could help me please.
I agree with you on 1. On 2, ($6,182 * 2) - $4,630 = $7,734 so this is expected behavior. You can buy up to twice the amount in cash on stock with Regulation T. Or, calculated the other way, 6182 - (4630 / 2) = $3,867 for the amount of options you can buy since you can only buy 100% in options.
User avatar
indexfundfan
Posts: 3962
Joined: Tue Feb 20, 2007 10:21 am
Contact:

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

Post by indexfundfan »

I have just quickly scanned through this thread. Very interesting option to a line-of-credit.

I am wondering how do you select the two strike prices to use? For example, what would make you decide to use 4600/4800 pair instead 4650/4750? Do you look at the liquidity? What would be a good pair today?
My signature has been deleted.
impatientInv
Posts: 349
Joined: Fri Sep 03, 2021 1:26 pm

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

Post by impatientInv »

comeinvest wrote: Wed Dec 22, 2021 4:10 am
impatientInv wrote: Tue Dec 21, 2021 11:30 am Schwab and Merrill Edge donot allow box spreads.
I don't mean to prove you wrong, but as I already have a Schwab account for checking account purposes, merely out of curiosity I tried creating a box spread. I entered a $10k spread, 4000-4100 SPX in StreetSmartCentral. (You can go to StreetSmartCentral from the home page after logging in.)
I have nothing in the account except $6,182.03 cash, which obviously means I have a Reg T account.
The Preview window says:
New Stock Buying Power: $12,364.06
New Option Buying Power: $6,182.03
My current "stock buying power" and "options buying power", displayed under "Balances" on the same screen, are exactly the same values.

To better understand Schwab's lingo, I entered a BUY 10 SPY shares order, limit 463.
The Preview window says:
Estimated Order: $4,630
New Stock Buying Power: $7,734.06
New Option Buying Power: $3,867.03

Now I'm more confused than before.
1. The first experiment suggests that Schwab allows box spreads, doesn't it? It further suggests that there is zero change in buying power with the box spread, which means I can use it e.g. to buy stocks, doesn't it?
2. The second experiment suggests that SPY has 100% margin requirement at Schwab???

If anybody who ever traded with Schwab could help me please.

I spoke to Schwab derivatives and margin team a few times. They say that credit from the box spread will be held back as margin. Though they allow execution for the box spread, none of the credit can be used.

- I executed a SPY 440-500 box spread - credit of around $6k. -- Not available for trading or withdrawal.
- I talked to them about trading SPX 4500-4600 box spread credit of around $10k. They say that 10k credit will be held back, making the trade useless. I did not execute the SPX trade.

If anyone has done this on Schwab, pls let me know. I will replicate it.
No individual stocks.
Kbg
Posts: 355
Joined: Thu Mar 23, 2017 11:33 am

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

Post by Kbg »

comeinvest wrote: Wed Dec 22, 2021 1:27 am
Kbg wrote: Tue Dec 21, 2021 11:55 pm
comeinvest wrote: Tue Dec 21, 2021 4:26 pm
richardm wrote: Tue Dec 21, 2021 11:39 am
impatientInv wrote: Tue Dec 21, 2021 11:30 am Schwab and Merrill Edge donot allow box spreads.
Given that Schwab and TD Ameritrade are hellbent on combining the worst aspects of the two brokerages as they move forward with their merger, I suspect we can add TD Ameritrade to the "does not allow" list someday soon.
What choices are left except IB? I like IB, except the securities lending and payments-in-lieu. Is anybody using TradeStation?

Also, what if I build my taxable leveraged portfolio with box spreads, and IB falters like they disallow box spreads, what are the possible backup options to move to?
Maybe I'm missing something, but you can opt out of IB lending your shares out.
No, you can't opt out if you use broker's margin OR borrow money via options (like box spreads).
To cover the loaned amount, yes I agree. Your holdings are your collateral.

Please note the last sentence on page 13.

https://ndcdyn.interactivebrokers.com/U ... eement.jsp

This is an interesting nuance...I could be completely wrong, but let's say you opted out of the stock lending program and you you were not margined to the hilt. It seems that whatever is "on loan" is subject to being loaned out but the rest is not.
DMoogle
Posts: 549
Joined: Sat Oct 31, 2020 10:24 pm

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

Post by DMoogle »

indexfundfan wrote: Wed Dec 22, 2021 8:10 am I have just quickly scanned through this thread. Very interesting option to a line-of-credit.

I am wondering how do you select the two strike prices to use? For example, what would make you decide to use 4600/4800 pair instead 4650/4750? Do you look at the liquidity? What would be a good pair today?
I had the same question earlier on. I came to the conclusion that it probably doesn't matter at all. 100/300 would probably get the same fill that 4500/4700 does. If you have doubts, may as well do something close to what others are doing based on what's on http://boxtrades.com.
User avatar
indexfundfan
Posts: 3962
Joined: Tue Feb 20, 2007 10:21 am
Contact:

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

Post by indexfundfan »

DMoogle wrote: Wed Dec 22, 2021 10:48 am
indexfundfan wrote: Wed Dec 22, 2021 8:10 am I have just quickly scanned through this thread. Very interesting option to a line-of-credit.

I am wondering how do you select the two strike prices to use? For example, what would make you decide to use 4600/4800 pair instead 4650/4750? Do you look at the liquidity? What would be a good pair today?
I had the same question earlier on. I came to the conclusion that it probably doesn't matter at all. 100/300 would probably get the same fill that 4500/4700 does. If you have doubts, may as well do something close to what others are doing based on what's on http://boxtrades.com.
Thank you.

I guess another thing is the "spread" should be somewhat related to the loan I want to take. If I want a $30k loan, it makes sense to use a spread of 300, e.g. 4500/4800, and I would only need to trade 4 x 1 contracts. If I use 4650/4800, I would need 4 x 2 contracts (double the commission).
My signature has been deleted.
DMoogle
Posts: 549
Joined: Sat Oct 31, 2020 10:24 pm

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

Post by DMoogle »

indexfundfan wrote: Wed Dec 22, 2021 12:17 pmThank you.

I guess another thing is the "spread" should be somewhat related to the loan I want to take. If I want a $30k loan, it makes sense to use a spread of 300, e.g. 4500/4800, and I would only need to trade 4 x 1 contracts. If I use 4650/4800, I would need 4 x 2 contracts (double the commission).
Definitely.
comeinvest
Posts: 2709
Joined: Mon Mar 12, 2012 6:57 pm

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

Post by comeinvest »

impatientInv wrote: Wed Dec 22, 2021 8:46 am
comeinvest wrote: Wed Dec 22, 2021 4:10 am
impatientInv wrote: Tue Dec 21, 2021 11:30 am Schwab and Merrill Edge donot allow box spreads.
I don't mean to prove you wrong, but as I already have a Schwab account for checking account purposes, merely out of curiosity I tried creating a box spread. I entered a $10k spread, 4000-4100 SPX in StreetSmartCentral. (You can go to StreetSmartCentral from the home page after logging in.)
I have nothing in the account except $6,182.03 cash, which obviously means I have a Reg T account.
The Preview window says:
New Stock Buying Power: $12,364.06
New Option Buying Power: $6,182.03
My current "stock buying power" and "options buying power", displayed under "Balances" on the same screen, are exactly the same values.

To better understand Schwab's lingo, I entered a BUY 10 SPY shares order, limit 463.
The Preview window says:
Estimated Order: $4,630
New Stock Buying Power: $7,734.06
New Option Buying Power: $3,867.03

Now I'm more confused than before.
1. The first experiment suggests that Schwab allows box spreads, doesn't it? It further suggests that there is zero change in buying power with the box spread, which means I can use it e.g. to buy stocks, doesn't it?
2. The second experiment suggests that SPY has 100% margin requirement at Schwab???

If anybody who ever traded with Schwab could help me please.

I spoke to Schwab derivatives and margin team a few times. They say that credit from the box spread will be held back as margin. Though they allow execution for the box spread, none of the credit can be used.

- I executed a SPY 440-500 box spread - credit of around $6k. -- Not available for trading or withdrawal.
- I talked to them about trading SPX 4500-4600 box spread credit of around $10k. They say that 10k credit will be held back, making the trade useless. I did not execute the SPX trade.

If anyone has done this on Schwab, pls let me know. I will replicate it.
But the Preview screen "new stock buying power" is pretty explicit that I can buy $12,364.06 worth of stocks after the box trade, isn't it?
Maybe they changed their policies since you last talked to them?
Also, what about other (non-box) options strategies that result in a credit in your account, do all of them have a margin requirement of 100% of the credit? Or are they just making it hard for box spreads, to force customers into their broker's margin?
What if you use strategies with legs that offset, i.e. credit and debit?
richardm
Posts: 49
Joined: Mon Nov 20, 2017 6:42 pm

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

Post by richardm »

An update to my Boxes on Reg-T situation with TDA. I wrote to them about the legs of multiple box trades not being properly matched. The reply:
I think you are missing that there are partial match ups, which happen if the system can potentially hold a lower margin requirement, when pairing another way. If you see in your image, you have some .33's, which would match to the .67's, to total 1 contract. Therefore, if you add one .33 to one .67, you will get a total of 4 contracts. When combined with the 12 full 1 contract lots, that is a total of 16 and not 20. WE are unable to force the system to rematch how it is holding, but I do only see 16 total contracts and not 20.
They're right in that some of the Explain Margin lines were qty 0.33 or 0.66 and the sum was 16. It's as if the option positions were apportioned across the "trades" (e.g. call credit spreads, put credit spreads, etc). Anyway, I don't like the answer but I can't verify if their margin calcs are faithful to Reg-T so whatever... I'll be like Elsa and "let it go."

Taking matters into my own hands, I've bought-to-close box #4 so I'm left with this:

Box 1: 4475/4500 724dte
Box 2: 4600/4800 724dte
Box 3: 4500/4700 1095dte
Box 4: 4000/4200 1459dte
Box 5: 4500/4800 1459dte

Explain margin has been repaired, with three complete and properly matched boxes showing. So the problem wasn't overlapping strikes across boxes; it was overlapping DTEs. Lesson learned is to spread the boxes across DTEs.

Regarding Reg-T margin and buying power: the remaining boxes are nominal $20k + $20k + $30k = $70k. Actual credit was $66.9k (long duration = a lot of interest expense). Buying Power effect and margin req is $25k + $25k + $37.5k = $87.5k. So it looks like the "Reg-T penalty" is 25%. In other words, selling a $20k box to convert buying power into cash consumes $25k in buying power.

I'll look into PM qualification after the new year.
comeinvest
Posts: 2709
Joined: Mon Mar 12, 2012 6:57 pm

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

Post by comeinvest »

richardm wrote: Wed Dec 22, 2021 1:20 pm An update to my Boxes on Reg-T situation with TDA. I wrote to them about the legs of multiple box trades not being properly matched. The reply:
I think you are missing that there are partial match ups, which happen if the system can potentially hold a lower margin requirement, when pairing another way. If you see in your image, you have some .33's, which would match to the .67's, to total 1 contract. Therefore, if you add one .33 to one .67, you will get a total of 4 contracts. When combined with the 12 full 1 contract lots, that is a total of 16 and not 20. WE are unable to force the system to rematch how it is holding, but I do only see 16 total contracts and not 20.
They're right in that some of the Explain Margin lines were qty 0.33 or 0.66 and the sum was 16. It's as if the option positions were apportioned across the "trades" (e.g. call credit spreads, put credit spreads, etc). Anyway, I don't like the answer but I can't verify if their margin calcs are faithful to Reg-T so whatever... I'll be like Elsa and "let it go."

Taking matters into my own hands, I've bought-to-close box #4 so I'm left with this:

Box 1: 4475/4500 724dte
Box 2: 4600/4800 724dte
Box 3: 4500/4700 1095dte
Box 4: 4000/4200 1459dte
Box 5: 4500/4800 1459dte

Explain margin has been repaired, with three complete and properly matched boxes showing. So the problem wasn't overlapping strikes across boxes; it was overlapping DTEs. Lesson learned is to spread the boxes across DTEs.

Regarding Reg-T margin and buying power: the remaining boxes are nominal $20k + $20k + $30k = $70k. Actual credit was $66.9k (long duration = a lot of interest expense). Buying Power effect and margin req is $25k + $25k + $37.5k = $87.5k. So it looks like the "Reg-T penalty" is 25%. In other words, selling a $20k box to convert buying power into cash consumes $25k in buying power.

I'll look into PM qualification after the new year.
Thanks a lot for the data points. I understand less than half of this, but lesson learned, go for Portfolio Margin to eliminate an abundance of complications and complexity.
comeinvest
Posts: 2709
Joined: Mon Mar 12, 2012 6:57 pm

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

Post by comeinvest »

comeinvest wrote: Wed Dec 22, 2021 12:51 pm
impatientInv wrote: Wed Dec 22, 2021 8:46 am
comeinvest wrote: Wed Dec 22, 2021 4:10 am
impatientInv wrote: Tue Dec 21, 2021 11:30 am Schwab and Merrill Edge donot allow box spreads.
I don't mean to prove you wrong, but as I already have a Schwab account for checking account purposes, merely out of curiosity I tried creating a box spread. I entered a $10k spread, 4000-4100 SPX in StreetSmartCentral. (You can go to StreetSmartCentral from the home page after logging in.)
I have nothing in the account except $6,182.03 cash, which obviously means I have a Reg T account.
The Preview window says:
New Stock Buying Power: $12,364.06
New Option Buying Power: $6,182.03
My current "stock buying power" and "options buying power", displayed under "Balances" on the same screen, are exactly the same values.

To better understand Schwab's lingo, I entered a BUY 10 SPY shares order, limit 463.
The Preview window says:
Estimated Order: $4,630
New Stock Buying Power: $7,734.06
New Option Buying Power: $3,867.03

Now I'm more confused than before.
1. The first experiment suggests that Schwab allows box spreads, doesn't it? It further suggests that there is zero change in buying power with the box spread, which means I can use it e.g. to buy stocks, doesn't it?
2. The second experiment suggests that SPY has 100% margin requirement at Schwab???

If anybody who ever traded with Schwab could help me please.

I spoke to Schwab derivatives and margin team a few times. They say that credit from the box spread will be held back as margin. Though they allow execution for the box spread, none of the credit can be used.

- I executed a SPY 440-500 box spread - credit of around $6k. -- Not available for trading or withdrawal.
- I talked to them about trading SPX 4500-4600 box spread credit of around $10k. They say that 10k credit will be held back, making the trade useless. I did not execute the SPX trade.

If anyone has done this on Schwab, pls let me know. I will replicate it.
But the Preview screen "new stock buying power" is pretty explicit that I can buy $12,364.06 worth of stocks after the box trade, isn't it?
Maybe they changed their policies since you last talked to them?
Also, what about other (non-box) options strategies that result in a credit in your account, do all of them have a margin requirement of 100% of the credit? Or are they just making it hard for box spreads, to force customers into their broker's margin?
What if you use strategies with legs that offset, i.e. credit and debit?
Schwab has a page explaining Portfolio Margin, so they definitely offer PM: https://client.schwab.com/secured/margin/portfolio
I just called them and asked if the proceeds of box spreads can be used to buy securities. The answer was generic and vague, no yes or no. The representative knew the word "box spread", but I have a feeling that he was not 100% familiar with the concept of using box spreads to replace broker's margin. He offered to put an example trade in his system, I declined because I did the same thing just before and posted the results above. He said that Schwab only charges broker's margin if the cash balance is negative (thank you for that information!). He also said that the margin requirement is risk based. He said that the OCC requires some sort of minimum margin requirement per position (??). He didn't say anything that would prevent using box spreads for leverage. I asked him if Schwab has any policy to prevent customers from replacing broker's margin by selling options, he said no. But then again it could be that he was not aware of all of their margin policies.

@impatientInv - did you have Portfolio Margin when you attempted your box spreads at Schwab?
User avatar
indexfundfan
Posts: 3962
Joined: Tue Feb 20, 2007 10:21 am
Contact:

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

Post by indexfundfan »

comeinvest wrote: Wed Dec 22, 2021 1:58 pm Schwab has a page explaining Portfolio Margin, so they definitely offer PM: https://client.schwab.com/secured/margin/portfolio
I just called them and asked if the proceeds of box spreads can be used to buy securities. The answer was generic and vague, no yes or no. The representative knew the word "box spread", but I have a feeling that he was not 100% familiar with the concept of using box spreads to replace broker's margin. He offered to put an example trade in his system, I declined because I did the same thing just before and posted the results above. He said that Schwab only charges broker's margin if the cash balance is negative (thank you for that information!). He also said that the margin requirement is risk based. He said that the OCC requires some sort of minimum margin requirement per position (??). He didn't say anything that would prevent using box spreads for leverage. I asked him if Schwab has any policy to prevent customers from replacing broker's margin by selling options, he said no.
So other than IBKR, which major broker can we use to execute box spread funded loans?

From the earlier report, it seems a no for Schwab if the "credit from the box spread will be held back as margin". I have accounts with Etrade and Fidelity. To get portfolio margin at Etrade requires me to reapply for a brand new account (cannot convert existing account).
https://us.etrade.com/e/t/estation/pric ... 1302030000

Seems a hassle to me, so I started with Fidelity. I called Fidelity, and they require you to have Options Level 5 before they will even consider granting portfolio margin. So I completed the options level 5 application and I am waiting for approval. Once that is approved, I would need to call in, get interviewed to qualify for PM.
https://www.fidelity.com/products/atbt/ ... _Help.html
My signature has been deleted.
comeinvest
Posts: 2709
Joined: Mon Mar 12, 2012 6:57 pm

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

Post by comeinvest »

indexfundfan wrote: Wed Dec 22, 2021 2:12 pm
comeinvest wrote: Wed Dec 22, 2021 1:58 pm Schwab has a page explaining Portfolio Margin, so they definitely offer PM: https://client.schwab.com/secured/margin/portfolio
I just called them and asked if the proceeds of box spreads can be used to buy securities. The answer was generic and vague, no yes or no. The representative knew the word "box spread", but I have a feeling that he was not 100% familiar with the concept of using box spreads to replace broker's margin. He offered to put an example trade in his system, I declined because I did the same thing just before and posted the results above. He said that Schwab only charges broker's margin if the cash balance is negative (thank you for that information!). He also said that the margin requirement is risk based. He said that the OCC requires some sort of minimum margin requirement per position (??). He didn't say anything that would prevent using box spreads for leverage. I asked him if Schwab has any policy to prevent customers from replacing broker's margin by selling options, he said no.
So other than IBKR, which major broker can we use to execute box spread funded loans?

From the earlier report, it seems a no for Schwab if the "credit from the box spread will be held back as margin". I have accounts with Etrade and Fidelity. To get portfolio margin at Etrade requires me to reapply for a brand new account (cannot convert existing account).
https://us.etrade.com/e/t/estation/pric ... 1302030000

Seems a hassle to me, so I started with Fidelity. I called Fidelity, and they require you to have Options Level 5 before they will even consider granting portfolio margin. So I completed the options level 5 application and I am waiting for approval. Once that is approved, I would need to call in, get interviewed to qualify for PM.
https://www.fidelity.com/products/atbt/ ... _Help.html
All my exercises so far suggest that Schwab is good for leverage with box spreads. Although admittedly, it seems suspicious that the Preview window basically implies $0.00 margin requirement for the box -> cash conversion, even in a Reg T account:
I have nothing in the account except $6,182.03 cash, which obviously means I have a Reg T account.
The Preview window says:
New Stock Buying Power: $12,364.06
New Option Buying Power: $6,182.03
My current "stock buying power" and "options buying power", displayed under "Balances" on the same screen, are exactly the same values.
impatientInv says Schwab doesn't allow to use the proceeds from boxes. Maybe the level 1/2/3 options privileges play a role? Just thinking loud.

With suspicious Trade Preview, and clueless customer representative, I'm not sure how I can actually know what's happening before executing the trade. Schwab doesn't offer paper trading accounts.

B.t.w. what is Schwab's commission for options? Their latest Pricing Guide from Oct 2021 says $2.25 per option, but the trade preview says $1.25.
Last edited by comeinvest on Wed Dec 22, 2021 6:13 pm, edited 3 times in total.
calwatch
Posts: 1447
Joined: Wed Oct 02, 2013 1:48 am

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

Post by calwatch »

indexfundfan wrote: Wed Dec 22, 2021 2:12 pm So other than IBKR, which major broker can we use to execute box spread funded loans?
TD Ameritrade, which is what I use and have successfully opened four boxes with them for differing maturities and amounts.
User avatar
indexfundfan
Posts: 3962
Joined: Tue Feb 20, 2007 10:21 am
Contact:

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

Post by indexfundfan »

I wanted to feedback that it is a arduous process trying to get portfolio margin (PM) at Fidelity. On the phone, the rep wanted to know specifically why I need PM and also gave me the spiel that Reg T will provide me with sufficient equity. He also mentioned that they will do a credit check and that it is a very thorough process and will take several days. It sounds to me that Fidelity is unwilling to spend the effort and time to get me approved for PM. They wanted to see me utilizing margin a lot first before reconsidering. I didn't push further and gave up. When I last had PM with IB, I remember it was not a complicated process.

Was it easy to get PM with TDA?
My signature has been deleted.
calwatch
Posts: 1447
Joined: Wed Oct 02, 2013 1:48 am

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

Post by calwatch »

Yes. You apply over the phone and ask for it. When he started the spiel about the higher risk of leverage and asking about my experience I indicated I had portfolio margin with IBKR (which was true). I verbally nodded when he went through all the risk. Then they send you a quiz about options, even though you may not trade them and just use it for equity leverage - the answers are on the Internet here: https://www.reddit.com/r/options/commen ... rgin_w_td/ but I passed it without cheating by drawing on my experience trading options in the past. The account was approved for PM two days later. Note that the legacy Think or Swim group approved it and not Ameritrade, as all these emails came from Think or Swim.
moneyflowin
Posts: 287
Joined: Sat Oct 16, 2021 6:14 am

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

Post by moneyflowin »

impatientInv wrote: Wed Dec 22, 2021 8:46 am
- I executed a SPY 440-500 box spread - credit of around $6k. -- Not available for trading or withdrawal.
- I talked to them about trading SPX 4500-4600 box spread credit of around $10k. They say that 10k credit will be held back, making the trade useless. I did not execute the SPX trade.
FYI I hope you've closed your SPY box. You should not use American style options to open a box
impatientInv
Posts: 349
Joined: Fri Sep 03, 2021 1:26 pm

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

Post by impatientInv »

Semantics wrote: Tue Mar 30, 2021 10:08 pm Biggest problem is your strikes, you should use rounder numbers. The open interest on Dec 23 3975 options is essentially zero, compared to around 1000 at 3900 and 4000. As others have pointed out, you will get easier fills at nearer term dates as well, where liquidity is a bit higher, especially if a 10k loan is too much and you need a narrower spread (but if you pay commissions you do want a wide spread if possible). Don't expect an instant fill either, you might need to leave the order open for a while unless you're willing to accept a slightly worse rate. Steve Reading said he would try over a few days sometimes. Personally I'm less patient and just lower my ask every 10-20 minutes and try to get it filled the same day. I've done this on both IBKR and Schwab, always using SPX as well.
Do SPX box spreads word at Schwab? are there any specific requirements for it to work?

- I talked to them about trading SPX 4500-4600 box spread credit of around $10k. They say that 10k credit will be held back, making the trade useless. I did not execute this trade.
- I executed a SPY 440-500 box spread - credit of around $6k. -- Not available for trading or withdrawal. I have since closed this trade.
No individual stocks.
Semantics
Posts: 352
Joined: Tue Mar 10, 2020 1:42 pm

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

Post by Semantics »

impatientInv wrote: Wed Dec 22, 2021 10:44 pm
Semantics wrote: Tue Mar 30, 2021 10:08 pm Biggest problem is your strikes, you should use rounder numbers. The open interest on Dec 23 3975 options is essentially zero, compared to around 1000 at 3900 and 4000. As others have pointed out, you will get easier fills at nearer term dates as well, where liquidity is a bit higher, especially if a 10k loan is too much and you need a narrower spread (but if you pay commissions you do want a wide spread if possible). Don't expect an instant fill either, you might need to leave the order open for a while unless you're willing to accept a slightly worse rate. Steve Reading said he would try over a few days sometimes. Personally I'm less patient and just lower my ask every 10-20 minutes and try to get it filled the same day. I've done this on both IBKR and Schwab, always using SPX as well.
Do SPX box spreads word at Schwab? are there any specific requirements for it to work?

- I talked to them about trading SPX 4500-4600 box spread credit of around $10k. They say that 10k credit will be held back, making the trade useless. I did not execute this trade.
- I executed a SPY 440-500 box spread - credit of around $6k. -- Not available for trading or withdrawal. I have since closed this trade.
I have a few open there, so they definitely work. One likely problem is likely that you were using SPY options, which are American style and have early exercise risk (so their PM risk algorithm won't treat it as risk-free, you would have this issue at all brokerages). You need to be using a European style options, such as index options like SPX.
comeinvest
Posts: 2709
Joined: Mon Mar 12, 2012 6:57 pm

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

Post by comeinvest »

Semantics wrote: Wed Dec 22, 2021 10:51 pm
impatientInv wrote: Wed Dec 22, 2021 10:44 pm
Semantics wrote: Tue Mar 30, 2021 10:08 pm Biggest problem is your strikes, you should use rounder numbers. The open interest on Dec 23 3975 options is essentially zero, compared to around 1000 at 3900 and 4000. As others have pointed out, you will get easier fills at nearer term dates as well, where liquidity is a bit higher, especially if a 10k loan is too much and you need a narrower spread (but if you pay commissions you do want a wide spread if possible). Don't expect an instant fill either, you might need to leave the order open for a while unless you're willing to accept a slightly worse rate. Steve Reading said he would try over a few days sometimes. Personally I'm less patient and just lower my ask every 10-20 minutes and try to get it filled the same day. I've done this on both IBKR and Schwab, always using SPX as well.
Do SPX box spreads word at Schwab? are there any specific requirements for it to work?

- I talked to them about trading SPX 4500-4600 box spread credit of around $10k. They say that 10k credit will be held back, making the trade useless. I did not execute this trade.
- I executed a SPY 440-500 box spread - credit of around $6k. -- Not available for trading or withdrawal. I have since closed this trade.
I have a few open there, so they definitely work. One likely problem is likely that you were using SPY options, which are American style and have early exercise risk (so their PM risk algorithm won't treat it as risk-free, you would have this issue at all brokerages). You need to be using a European style options, such as index options like SPX.
Not entirely true. I have been using ES and several commodity futures boxes at IB with close to zero margin requirement. My guess it's because early exercise is always suboptimal for the person exercising, and therefore good for the short option holder.
EDIT: Futures options may be different from equity options in this respect. Assigned futures options turn into a future, with similar risk characteristics as the option for far ITM options. I have no idea how the portfolio risk algo works.
User avatar
indexfundfan
Posts: 3962
Joined: Tue Feb 20, 2007 10:21 am
Contact:

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

Post by indexfundfan »

calwatch wrote: Wed Dec 22, 2021 9:37 pm Yes. You apply over the phone and ask for it. When he started the spiel about the higher risk of leverage and asking about my experience I indicated I had portfolio margin with IBKR (which was true). I verbally nodded when he went through all the risk. Then they send you a quiz about options, even though you may not trade them and just use it for equity leverage - the answers are on the Internet here: https://www.reddit.com/r/options/commen ... rgin_w_td/ but I passed it without cheating by drawing on my experience trading options in the past. The account was approved for PM two days later. Note that the legacy Think or Swim group approved it and not Ameritrade, as all these emails came from Think or Swim.
Thanks for the tips.
My signature has been deleted.
impatientInv
Posts: 349
Joined: Fri Sep 03, 2021 1:26 pm

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

Post by impatientInv »

Semantics wrote: Wed Dec 22, 2021 10:51 pm
impatientInv wrote: Wed Dec 22, 2021 10:44 pm
Semantics wrote: Tue Mar 30, 2021 10:08 pm Biggest problem is your strikes, you should use rounder numbers. The open interest on Dec 23 3975 options is essentially zero, compared to around 1000 at 3900 and 4000. As others have pointed out, you will get easier fills at nearer term dates as well, where liquidity is a bit higher, especially if a 10k loan is too much and you need a narrower spread (but if you pay commissions you do want a wide spread if possible). Don't expect an instant fill either, you might need to leave the order open for a while unless you're willing to accept a slightly worse rate. Steve Reading said he would try over a few days sometimes. Personally I'm less patient and just lower my ask every 10-20 minutes and try to get it filled the same day. I've done this on both IBKR and Schwab, always using SPX as well.
Do SPX box spreads word at Schwab? are there any specific requirements for it to work?

- I talked to them about trading SPX 4500-4600 box spread credit of around $10k. They say that 10k credit will be held back, making the trade useless. I did not execute this trade.
- I executed a SPY 440-500 box spread - credit of around $6k. -- Not available for trading or withdrawal. I have since closed this trade.
I have a few open there, so they definitely work. One likely problem is likely that you were using SPY options, which are American style and have early exercise risk (so their PM risk algorithm won't treat it as risk-free, you would have this issue at all brokerages). You need to be using a European style options, such as index options like SPX.
Thanks. Trying to execute the June - SPX 4500-4600 box spread now. It hasn't yet closed at 99.70 credit. Based on your experience at what value will it close? I will lower by 0.05 every 15 mins or so..

https://www.boxtrades.com/ says Dec 22 will be around 99.27. and June 22 around 99.72. I guess it will go through a bit lower.

BTW - has anyone tried this walk limit order- but it changes the order few seconds (longest every 1 minute).
https://www.schwab.com/video/streetsmar ... mit-orders

PS: The SPX box spread works as a loan on Schwab. June spread came with interest rate of 0.76%
No individual stocks.
comeinvest
Posts: 2709
Joined: Mon Mar 12, 2012 6:57 pm

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

Post by comeinvest »

impatientInv wrote: Thu Dec 23, 2021 9:01 am PS: The SPX box spread works as a loan on Schwab. June spread came with interest rate of 0.76%
What was the difference in margin requirement / difference in buying power before and after the trade?
calwatch
Posts: 1447
Joined: Wed Oct 02, 2013 1:48 am

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

Post by calwatch »

indexfundfan wrote: Thu Dec 23, 2021 7:13 am
calwatch wrote: Wed Dec 22, 2021 9:37 pm Yes. You apply over the phone and ask for it. When he started the spiel about the higher risk of leverage and asking about my experience I indicated I had portfolio margin with IBKR (which was true). I verbally nodded when he went through all the risk. Then they send you a quiz about options, even though you may not trade them and just use it for equity leverage - the answers are on the Internet here: https://www.reddit.com/r/options/commen ... rgin_w_td/ but I passed it without cheating by drawing on my experience trading options in the past. The account was approved for PM two days later. Note that the legacy Think or Swim group approved it and not Ameritrade, as all these emails came from Think or Swim.
Thanks for the tips.
You're welcome. The Think or Swim group is on par with IBKR reputation wise in catering to active traders. Schwab also purchased a shop which catered to active traders in OptionsXpress but as that was ten years ago, it's possible all of those people have left the building. Some of the TOS people jumped to Tastyworks, but it does seem Ameritrade caters more to active and more exotic traders than Schwab.
calculon11
Posts: 15
Joined: Thu Jan 18, 2018 12:07 pm

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

Post by calculon11 »

Can someone please explain why this box is showing as such a negative return? The profit loss calculator shows as max loss of $720. Shouldn't one side have profit cancelling out the loss? Did I enter something incorrectly? Please let me know.
https://imgur.com/a/KHMEVp0
calwatch
Posts: 1447
Joined: Wed Oct 02, 2013 1:48 am

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

Post by calwatch »

calculon11 wrote: Thu Dec 23, 2021 12:47 pm Can someone please explain why this box is showing as such a negative return? The profit loss calculator shows as max loss of $720. Shouldn't one side have profit cancelling out the loss? Did I enter something incorrectly? Please let me know.
https://imgur.com/a/KHMEVp0
That seems right to me. This is the net loss. It looks like what I did earlier: viewtopic.php?f=10&t=344667&p=6240277&h ... y#p6240277
User avatar
indexfundfan
Posts: 3962
Joined: Tue Feb 20, 2007 10:21 am
Contact:

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

Post by indexfundfan »

calculon11 wrote: Thu Dec 23, 2021 12:47 pm Can someone please explain why this box is showing as such a negative return? The profit loss calculator shows as max loss of $720. Shouldn't one side have profit cancelling out the loss? Did I enter something incorrectly? Please let me know.
https://imgur.com/a/KHMEVp0
It's a loss because your plan is to borrow $19280 and pay back $20000 (with interest) in Dec 2024. Your "loss" is $720 in interest.
My signature has been deleted.
calculon11
Posts: 15
Joined: Thu Jan 18, 2018 12:07 pm

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

Post by calculon11 »

calwatch wrote: Thu Dec 23, 2021 12:56 pm
calculon11 wrote: Thu Dec 23, 2021 12:47 pm Can someone please explain why this box is showing as such a negative return? The profit loss calculator shows as max loss of $720. Shouldn't one side have profit cancelling out the loss? Did I enter something incorrectly? Please let me know.
https://imgur.com/a/KHMEVp0
That seems right to me. This is the net loss. It looks like what I did earlier: viewtopic.php?f=10&t=344667&p=6240277&h ... y#p6240277
Thank you so much for the quick reply. Could you elaborate on the net loss please? This is the net loss if I were to sell now? The options will approach net 0 as they reach maturity, right? My account is showing down $10k and I'm freaking out a little bit. Thank you.
calwatch
Posts: 1447
Joined: Wed Oct 02, 2013 1:48 am

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

Post by calwatch »

calculon11 wrote: Thu Dec 23, 2021 1:04 pm
calwatch wrote: Thu Dec 23, 2021 12:56 pm
calculon11 wrote: Thu Dec 23, 2021 12:47 pm Can someone please explain why this box is showing as such a negative return? The profit loss calculator shows as max loss of $720. Shouldn't one side have profit cancelling out the loss? Did I enter something incorrectly? Please let me know.
https://imgur.com/a/KHMEVp0
That seems right to me. This is the net loss. It looks like what I did earlier: viewtopic.php?f=10&t=344667&p=6240277&h ... y#p6240277
Thank you so much for the quick reply. Could you elaborate on the net loss please? This is the net loss if I were to sell now? The options will approach net 0 as they reach maturity, right? My account is showing down $10k and I'm freaking out a little bit. Thank you.
Yes, that is the total loss when you sell and hold to maturity/expiration. As far as your balance, it will fluctuate due to mark to market and depending on how the spreads are and where the ask and bid are set by the market makers. If you look at the screen shot I posted earlier, and add up the gains and losses on the right most column, I have a paper loss of over $14,000. But on expiration, it will converge to the minimal loss of the box.
viewtopic.php?p=6351162#p6351162

Here it is today, by the way: Image
There is a paper gain of $400, but you would never get that if you placed these orders in the market today.
calculon11
Posts: 15
Joined: Thu Jan 18, 2018 12:07 pm

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

Post by calculon11 »

calwatch wrote: Thu Dec 23, 2021 1:32 pm
calculon11 wrote: Thu Dec 23, 2021 1:04 pm
calwatch wrote: Thu Dec 23, 2021 12:56 pm
calculon11 wrote: Thu Dec 23, 2021 12:47 pm Can someone please explain why this box is showing as such a negative return? The profit loss calculator shows as max loss of $720. Shouldn't one side have profit cancelling out the loss? Did I enter something incorrectly? Please let me know.
https://imgur.com/a/KHMEVp0
That seems right to me. This is the net loss. It looks like what I did earlier: viewtopic.php?f=10&t=344667&p=6240277&h ... y#p6240277
Thank you so much for the quick reply. Could you elaborate on the net loss please? This is the net loss if I were to sell now? The options will approach net 0 as they reach maturity, right? My account is showing down $10k and I'm freaking out a little bit. Thank you.
Yes, that is the total loss when you sell and hold to maturity/expiration. As far as your balance, it will fluctuate due to mark to market and depending on how the spreads are and where the ask and bid are set by the market makers. If you look at the screen shot I posted earlier, and add up the gains and losses on the right most column, I have a paper loss of over $14,000. But on expiration, it will converge to the minimal loss of the box.
viewtopic.php?p=6351162#p6351162

Here it is today, by the way: Image
There is a paper gain of $400, but you would never get that if you placed these orders in the market today.
Thank you for the explanation. I also called Fidelity and the rep explained that the loss is due to there being a very wide bid ask spread ($100 on the calls) and these being priced as market orders. As you stated, this will converge to the maximum loss of the box at maturity (~452).

I had incorrectly thought that two legs would be negative and the other two positive, cancelling each other out. I freaked out when I saw an instant loss of $10K, so I posted here. Hopefully others can learn from me and be prepared to see an unrealized loss.

On the plus side, I successfully sold my first box and was able to borrow $19,500 at 1.16% for two years.
User avatar
indexfundfan
Posts: 3962
Joined: Tue Feb 20, 2007 10:21 am
Contact:

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

Post by indexfundfan »

Anyone successfully executed a box spread and withdrawn the funds with Etrade? I currently only have Reg T margin with Etrade.
My signature has been deleted.
Post Reply