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

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

Post by comeinvest »

whodidntante wrote: Sat Nov 06, 2021 11:08 am
msun641 wrote: Sat Nov 06, 2021 6:22 am I'm not sure how much to be bothered by the real risk-adjusted return of the 5yr. What is it, like -2% or something? Moreover, I'm totally fine with an average nominal rate of 1.6% locked in over the next 5yrs. Less headache, more certainty. I will 100% be leveraged over the next 10-15 years of my life (early in the lifecycle).

Finally, it's $10,000. Well worth the lesson if I'm totally off-base. I'd love to hear more; it's not been entirely convincing so far.
I agree it's a good deal. I think it is useful to compare to alternatives of 5+ years term. I can get a 1.49% seven-year auto loan from a local credit union, which would be a great rate if one were buying a car regardless. But that is impossible to scale and it only works if you would buy a car regardless. This morning I borrowed $5,000 for two years at 0% unsecured. While that is a fantastic deal and your example of 10 grand is attainable, it would not be realistic to scale that to large amounts of money. With box spread financing, the rate is good and the sky is the limit, at least for a seven-figure pleb like me.
You can argue that $10k doesn't matter if you have 7 figures, but with that argument almost nothing matters. I am convinced that from a portfolio optimization point of view, and if you do this strategically, and you are not trying to time the market of interest rates i.e. if you don't think you can predict interest rates better than the market (I don't think I can), then this is very suboptimal, because you would effectively have negative treasury exposure of the amount of your loan, which results in very suboptimal risk-adjusted returns, because your negative treasury exposure and your stock market exposure will be correlated i.e. drawdowns will amplify. And your negative treasury exposure is at a maturity where risk-adjusted treasury returns are usually the highest. You can do a backtest or do some modeling to verify. The instantaneous cost of you loan is about 2.4% including your slippage; not bad in absolute terms, but bad in the current interest rate environment. Even if you "feel" more secure, I think you are less secure. With 1% of your portfolio it doesn't move the needle, but if we are discussing rational decision making in this forum, I believe this is not a rational decision.
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whodidntante
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by whodidntante »

comeinvest wrote: Sat Nov 06, 2021 2:26 pm
whodidntante wrote: Sat Nov 06, 2021 11:08 am
msun641 wrote: Sat Nov 06, 2021 6:22 am I'm not sure how much to be bothered by the real risk-adjusted return of the 5yr. What is it, like -2% or something? Moreover, I'm totally fine with an average nominal rate of 1.6% locked in over the next 5yrs. Less headache, more certainty. I will 100% be leveraged over the next 10-15 years of my life (early in the lifecycle).

Finally, it's $10,000. Well worth the lesson if I'm totally off-base. I'd love to hear more; it's not been entirely convincing so far.
I agree it's a good deal. I think it is useful to compare to alternatives of 5+ years term. I can get a 1.49% seven-year auto loan from a local credit union, which would be a great rate if one were buying a car regardless. But that is impossible to scale and it only works if you would buy a car regardless. This morning I borrowed $5,000 for two years at 0% unsecured. While that is a fantastic deal and your example of 10 grand is attainable, it would not be realistic to scale that to large amounts of money. With box spread financing, the rate is good and the sky is the limit, at least for a seven-figure pleb like me.
You can argue that $10k doesn't matter if you have 7 figures, but with that argument almost nothing matters. I am convinced that from a portfolio optimization point of view, and if you do this strategically, and you are not trying to time the market of interest rates i.e. if you don't think you can predict interest rates better than the market (I don't think I can), then this is very suboptimal, because you would effectively have negative treasury exposure of the amount of your loan, which results in very suboptimal risk-adjusted returns, because your negative treasury exposure and your stock market exposure will be correlated i.e. drawdowns will amplify. And your negative treasury exposure is at a maturity where risk-adjusted treasury returns are usually the highest. You can do a backtest or do some modeling to verify. The instantaneous cost of you loan is about 2.4% including your slippage; not bad in absolute terms, but bad in the current interest rate environment. Even if you "feel" more secure, I think you are less secure. With 1% of your portfolio it doesn't move the needle, but if we are discussing rational decision making in this forum, I believe this is not a rational decision.
I understand your comments and I agree with most of what you said. But for my own money, I don't want long exposure to Treasuries of any duration.
msun641
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by msun641 »

You can argue that $10k doesn't matter if you have 7 figures, but with that argument almost nothing matters. I am convinced that from a portfolio optimization point of view, and if you do this strategically, and you are not trying to time the market of interest rates i.e. if you don't think you can predict interest rates better than the market (I don't think I can), then this is very suboptimal, because you would effectively have negative treasury exposure of the amount of your loan, which results in very suboptimal risk-adjusted returns, because your negative treasury exposure and your stock market exposure will be correlated i.e. drawdowns will amplify. And your negative treasury exposure is at a maturity where risk-adjusted treasury returns are usually the highest. You can do a backtest or do some modeling to verify. The instantaneous cost of you loan is about 2.4% including your slippage; not bad in absolute terms, but bad in the current interest rate environment. Even if you "feel" more secure, I think you are less secure. With 1% of your portfolio it doesn't move the needle, but if we are discussing rational decision making in this forum, I believe this is not a rational decision.
I am realizing that I am just coming at things far more naively, and if there's more you can point to in terms of further reading, I have a lot to learn.

1) Surely "not trying to time the market of interest rates" would make it so that I am indifferent between all interest rates along the yield curve, no? Wouldn't having a preference for shorter duration box spreads be precisely an example of believing I can predict interest rates better than the market?

2) Any leverage amplifies drawdowns. I am fine with this. Like I said, I am early on in my lifecycle of investing; I am contributing a sizeable amount into my taxable each month; I am perfectly comfortable with larger drawdowns and am trying to invest in such a way that I am indifferent between large corrections and meltups.

3) Please show me the math regarding the instantaneous cost of the loan. I am really interested in this. I don't know how to think about this.

4) Is there any possible world in which the average interest rate over the next 5 years is higher than the current 5yr yield? If not, why is the 5yr yield so damn high? What is the market getting wrong?

Thanks for taking the time; I truly am learning as I go and am happy to be at the beginning of a long path.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

msun641 wrote: Sat Nov 06, 2021 3:49 pm
You can argue that $10k doesn't matter if you have 7 figures, but with that argument almost nothing matters. I am convinced that from a portfolio optimization point of view, and if you do this strategically, and you are not trying to time the market of interest rates i.e. if you don't think you can predict interest rates better than the market (I don't think I can), then this is very suboptimal, because you would effectively have negative treasury exposure of the amount of your loan, which results in very suboptimal risk-adjusted returns, because your negative treasury exposure and your stock market exposure will be correlated i.e. drawdowns will amplify. And your negative treasury exposure is at a maturity where risk-adjusted treasury returns are usually the highest. You can do a backtest or do some modeling to verify. The instantaneous cost of you loan is about 2.4% including your slippage; not bad in absolute terms, but bad in the current interest rate environment. Even if you "feel" more secure, I think you are less secure. With 1% of your portfolio it doesn't move the needle, but if we are discussing rational decision making in this forum, I believe this is not a rational decision.
I am realizing that I am just coming at things far more naively, and if there's more you can point to in terms of further reading, I have a lot to learn.

1) Surely "not trying to time the market of interest rates" would make it so that I am indifferent between all interest rates along the yield curve, no? Wouldn't having a preference for shorter duration box spreads be precisely an example of believing I can predict interest rates better than the market?

2) Any leverage amplifies drawdowns. I am fine with this. Like I said, I am early on in my lifecycle of investing; I am contributing a sizeable amount into my taxable each month; I am perfectly comfortable with larger drawdowns and am trying to invest in such a way that I am indifferent between large corrections and meltups.

3) Please show me the math regarding the instantaneous cost of the loan. I am really interested in this. I don't know how to think about this.

4) Is there any possible world in which the average interest rate over the next 5 years is higher than the current 5yr yield? If not, why is the 5yr yield so damn high? What is the market getting wrong?

Thanks for taking the time; I truly am learning as I go and am happy to be at the beginning of a long path.
to your (1): in a way you are right; but the yield curve is almost always positively sloped, which means in the long run you will be better or borrowing at short rates
to your (2): you will not only experience larger drawdowns because of your leverage, but also because the value of your loan will drop during a macroeconomic crash wish associated drop in interest rates. Triple whammy.
to your (3): for the 5y loan: ca. 1.1% yield to maturity (5y treasury, rounded) + ca. 0.8% rolldown return from the current slope of the yield curve (5y treasury) + ca. 0.5% (your slippage 1.66% vs. 1.05% for the 5y treasury) = ca. 2.4% your instantaneous cost (carry) of your loan pear year in your first year.
to your (4): it is not impossible that the average short-term rates over the next 5 years will be higher than the current 5-year yield, but it is not likely, as historically the yield curve has been almost always positively sloped. You will be paying the so-called term premium that others earn from you.
msun641
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by msun641 »

It's a multi whammy on the other side of the trade as well, though, right? If short term rates skyrocket, inflation is likely to be high, which impacts stocks less than bonds. Borrowing costs would increase at a time when it would at least nominally be a great time to leverage more into the market.

I think historically it's been proven out that the tail risk is more to the side of unexpectedly lower interest rates, but after the 40yr bond bull market, isn't there at least some argument to made that the blacker swan lies toward the shorter end of the curve nowadays?

Also, shouldn't anyone with access to $10000 in box spread financing use it to buy an I bond? 7% for the next 6 months. Free money.
parval
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by parval »

hi all sry to check 1 more time, but is the UI wrong here? I'm trying to short the box, shouldn't it say sell?

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

Post by skierincolorado »

So I just noticed in one account my box shows as a "SPX Box" but in another account I have a few boxes and each leg is show seperately. Besides being annoying, is this problematic at all?
skierincolorado
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by skierincolorado »

parval wrote: Mon Nov 08, 2021 8:59 am hi all sry to check 1 more time, but is the UI wrong here? I'm trying to short the box, shouldn't it say sell?

Image
buying a 4500-4000 is the same as selling a 4000-4500.

what that shows looks to me like you would be borrowing money if that's what you intend to do. It shows you buying the cheap call and selling the expensive call - so you'll be net receiving of cash. But I think I also had it once in ibkr where there was a bug and it displayed incorrectly. That could be what you are encountering.
parval
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by parval »

skierincolorado wrote: Mon Nov 08, 2021 1:27 pm
parval wrote: Mon Nov 08, 2021 8:59 am hi all sry to check 1 more time, but is the UI wrong here? I'm trying to short the box, shouldn't it say sell?

Image
buying a 4500-4000 is the same as selling a 4000-4500.

what that shows looks to me like you would be borrowing money if that's what you intend to do. It shows you buying the cheap call and selling the expensive call - so you'll be net receiving of cash. But I think I also had it once in ibkr where there was a bug and it displayed incorrectly. That could be what you are encountering.
ah thanks, i ended up putting a smaller 4400-4600 order to mimic the one that went through this morning

i can't tell if the order went through? it's in the logs and in my orders but not in the ask
Image
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

parval wrote: Mon Nov 08, 2021 2:31 pm i can't tell if the order went through? it's in the logs and in my orders but not in the ask
You have delayed quotes.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

skierincolorado wrote: Mon Nov 08, 2021 1:25 pm So I just noticed in one account my box shows as a "SPX Box" but in another account I have a few boxes and each leg is show seperately. Besides being annoying, is this problematic at all?
In my experience, IB generally will show boxes that were bought as exchange-traded combination orders as boxes in TWS, but they will not combine legs that were bought or sold separately into "official boxes". As you can tell, if they were trying to do the leatter, the solution would not always be unique, as legs could be reconstituted in different ways if you have multiple boxes where some strike prices are the same.

I do however believe that this is just for display. I assume that the margin calcs will be the same. (I have not tried this out yet. You could try to verify by putting in an order to buy back the box and look what the margin impact would be in "Preview", or maybe with their risk navigator.)
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

comeinvest wrote: Tue Nov 09, 2021 1:41 am
skierincolorado wrote: Mon Nov 08, 2021 1:25 pm So I just noticed in one account my box shows as a "SPX Box" but in another account I have a few boxes and each leg is show seperately. Besides being annoying, is this problematic at all?
In my experience, IB generally will show boxes that were bought as exchange-traded combination orders as boxes in TWS, but they will not combine legs that were bought or sold separately into "official boxes". As you can tell, if they were trying to do the leatter, the solution would not always be unique, as legs could be reconstituted in different ways if you have multiple boxes where some strike prices are the same.

I do however believe that this is just for display. I assume that the margin calcs will be the same. (I have not tried this out yet. You could try to verify by putting in an order to buy back the box and look what the margin impact would be in "Preview", or maybe with their risk navigator.)
I still prefer to sell a box than a combination of bull call spread and bear put spread, as the former requires much less margin than the latter.
skierincolorado
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by skierincolorado »

Fxmove88 wrote: Tue Nov 09, 2021 7:48 am
comeinvest wrote: Tue Nov 09, 2021 1:41 am
skierincolorado wrote: Mon Nov 08, 2021 1:25 pm So I just noticed in one account my box shows as a "SPX Box" but in another account I have a few boxes and each leg is show seperately. Besides being annoying, is this problematic at all?
In my experience, IB generally will show boxes that were bought as exchange-traded combination orders as boxes in TWS, but they will not combine legs that were bought or sold separately into "official boxes". As you can tell, if they were trying to do the leatter, the solution would not always be unique, as legs could be reconstituted in different ways if you have multiple boxes where some strike prices are the same.

I do however believe that this is just for display. I assume that the margin calcs will be the same. (I have not tried this out yet. You could try to verify by putting in an order to buy back the box and look what the margin impact would be in "Preview", or maybe with their risk navigator.)
I still prefer to sell a box than a combination of bull call spread and bear put spread, as the former requires much less margin than the latter.
Yeah I mean they were sold as boxes. But each leg shows individually. Maybe it’s because they are overlapping boxes and the combination of the legs into boxes is non unique. I will test out a buy back order and see how it affects the margin.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

skierincolorado wrote: Tue Nov 09, 2021 8:34 am Yeah I mean they were sold as boxes. But each leg shows individually. Maybe it’s because they are overlapping boxes and the combination of the legs into boxes is non unique. I will test out a buy back order and see how it affects the margin.
I never had that happen except in a paper account when I traded the legs separately. All my boxes show in the same constitution in which I bought them. Please let me know your findings regarding the margin.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

Fxmove88 wrote: Tue Nov 09, 2021 7:48 am
comeinvest wrote: Tue Nov 09, 2021 1:41 am
skierincolorado wrote: Mon Nov 08, 2021 1:25 pm So I just noticed in one account my box shows as a "SPX Box" but in another account I have a few boxes and each leg is show seperately. Besides being annoying, is this problematic at all?
In my experience, IB generally will show boxes that were bought as exchange-traded combination orders as boxes in TWS, but they will not combine legs that were bought or sold separately into "official boxes". As you can tell, if they were trying to do the leatter, the solution would not always be unique, as legs could be reconstituted in different ways if you have multiple boxes where some strike prices are the same.

I do however believe that this is just for display. I assume that the margin calcs will be the same. (I have not tried this out yet. You could try to verify by putting in an order to buy back the box and look what the margin impact would be in "Preview", or maybe with their risk navigator.)
I still prefer to sell a box than a combination of bull call spread and bear put spread, as the former requires much less margin than the latter.
Did you verify that the actual total margin requirement depends on whether you sold the box as a combination order, via bull and bear spreads, or the individual legs? I hope you have portfolio margin. I thought all derivatives in the portfolio that belong to one underlying are usually combined, together with the underlying itself, to determine the total risk margin. Please let me know if I'm wrong.

I think they call it SPAN margin. Correction: SPAN is for futures and futures options. Nevertheless securities and options should have a similar methodology.
skinnybuddha
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by skinnybuddha »

To start - thank you everyone for their valuable contributions to this thread. I'm still pretty ignorant but felt good enough to pull the trigger.

It looks like 2-year bond yields jumped 9bps today on inflation news, which was not great for my first box trade (4000-5000 for Dec 2023 at 977.5, it shows up on boxtrades.com as an embarrassing outlier). I was trading at Schwab and don't know if it also hurt that my trade was being routed with "smart" as the venue but I couldn't see a way to change it (though I did see different venue options for equity trades) and didn't want to bother calling in about it. I put in a limit order and decreased it slightly every couple of minutes to get the trade filled and be done with it. Even at 977.5 it wasn't instant but took a minute. Overall I'm still thrilled - based on another thread I'd negotiated with Schwab (after an employer compelled me to move from IB) to get margin rates down to 3.5%, and this is of course a huge improvement on that, especially for someone that isn't itemizing. The move to Schwab was a bit bumpy and I'm very happy to be settled in.

I should add that I do NOT have portfolio margin, and my biggest continuing gap in understanding is how this has impacted maintenance margin equity requirements. Compared to IB, Schwab does not clearly show things like account-level maintenance margin equity requirements. Based on a call to Schwab to understand it I think I'm in a good place, and they've said portfolio margin would not impact the margin requirement on spreads. The rep had to actually take out their own internal trade calculator to confirm, but they said the account could definitely take a 50% fall in my equity positions without issuing a margin call, which I had calculated was true (with some cushion) before the box spread trade. I'm not looking to max out margin or anything so that's good enough for now, but I would love to hear if others are doing the trade in Schwab without portfolio margin (which seems a lot harder to get here) and how they've understood the maintenance margin impact.
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

comeinvest wrote: Tue Nov 09, 2021 2:23 pm
Fxmove88 wrote: Tue Nov 09, 2021 7:48 am I still prefer to sell a box than a combination of bull call spread and bear put spread, as the former requires much less margin than the latter.
Did you verify that the actual total margin requirement depends on whether you sold the box as a combination order, via bull and bear spreads, or the individual legs? I hope you have portfolio margin. I thought all derivatives in the portfolio that belong to one underlying are usually combined, together with the underlying itself, to determine the total risk margin. Please let me know if I'm wrong.

I think they call it SPAN margin. Correction: SPAN is for futures and futures options. Nevertheless securities and options should have a similar methodology.
I am on portfolio margin with IBKR and the various margin requirements (ie. initial and maintenance for long and short) on the box, or combo call/put spreads are clearly spelled out.

What I don't understand is that so many resources are against leveraging stock portfolio including CNBC's Jim Cramer; while it makes perfect sense to me if I can get an inexpensive loan, why not take the opportunity to leverage as outlined in the following website:
https://www.vested.com.au/invest/strategies/leverage
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

Fxmove88 wrote: Fri Nov 12, 2021 10:29 am
comeinvest wrote: Tue Nov 09, 2021 2:23 pm
Fxmove88 wrote: Tue Nov 09, 2021 7:48 am I still prefer to sell a box than a combination of bull call spread and bear put spread, as the former requires much less margin than the latter.
Did you verify that the actual total margin requirement depends on whether you sold the box as a combination order, via bull and bear spreads, or the individual legs? I hope you have portfolio margin. I thought all derivatives in the portfolio that belong to one underlying are usually combined, together with the underlying itself, to determine the total risk margin. Please let me know if I'm wrong.

I think they call it SPAN margin. Correction: SPAN is for futures and futures options. Nevertheless securities and options should have a similar methodology.
I am on portfolio margin with IBKR and the various margin requirements (ie. initial and maintenance for long and short) on the box, or combo call/put spreads are clearly spelled out.
So are they the same or not, or can you please provide the link with the IB margin requirements for boxes and a call spread / put spread combination?
The page https://www.interactivebrokers.com/en/index.php?f=26660 just has Initial/RegT End of Day Margin requirements, not portfolio margin requirements.
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

comeinvest wrote: Fri Nov 12, 2021 3:26 pm
So are they the same or not, or can you please provide the link with the IB margin requirements for boxes and a call spread / put spread combination?
The page https://www.interactivebrokers.com/en/index.php?f=26660 just has Initial/RegT End of Day Margin requirements, not portfolio margin requirements.
IBKR phone app will show you the margin requirement if you are on PM.
For example for a $100k loan using SPX Box.
Margin requirement is
Initial (long) 63.32USD
Maintenance (long) 150.00USD
Initial (short) 76.92USD
Maintenance (short) 150.00USD

which is very small compared using put spreads n call spreads which will require to the thousand dollars just to maintain the spreads.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

Fxmove88 wrote: Sat Nov 13, 2021 12:09 am
comeinvest wrote: Fri Nov 12, 2021 3:26 pm
So are they the same or not, or can you please provide the link with the IB margin requirements for boxes and a call spread / put spread combination?
The page https://www.interactivebrokers.com/en/index.php?f=26660 just has Initial/RegT End of Day Margin requirements, not portfolio margin requirements.
IBKR phone app will show you the margin requirement if you are on PM.
For example for a $100k loan using SPX Box.
Margin requirement is
Initial (long) 63.32USD
Maintenance (long) 150.00USD
Initial (short) 76.92USD
Maintenance (short) 150.00USD

which is very small compared using put spreads n call spreads which will require to the thousand dollars just to maintain the spreads.
But how do you know the actual margin requirement after executing the bull and the bear spread. I think you can only know by doing it e.g. in a paper account and looking at your margin requirements afterwards.
parval
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by parval »

So I just realized the "Liquidate Last" option is grayed out on box spread, anyone else able to enable this? Googled a thread in some forums but didn't work for me.
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

parval wrote: Mon Nov 15, 2021 11:31 am So I just realized the "Liquidate Last" option is grayed out on box spread, anyone else able to enable this? Googled a thread in some forums but didn't work for me.
you need to set liquidate last on each leg, rather than a box.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

Fxmove88 wrote: Mon Nov 15, 2021 1:31 pm
parval wrote: Mon Nov 15, 2021 11:31 am So I just realized the "Liquidate Last" option is grayed out on box spread, anyone else able to enable this? Googled a thread in some forums but didn't work for me.
you need to set liquidate last on each leg, rather than a box.
I am only able to set liquidate last on the legs after copying the legs to Option Trader / Strategy Builder.

I am too lazy to jump through these hoops for all of my boxes and on each box renewal, which I plan on doing about every 3 months. Unless I see evidence of the contrary, I currently believe when leverage is reasonably low like for example for purpose of a leveraged life cycle investment strategy, there is no conceivable risk of liquidation. The valuation of my options spreads in TWS seems to be stable, and from what I hear they are derived from some proprietary interpolated valuation model. IB seems to recognize and value the boxes as a whole for margining purposes. I have yet to see real evidence that there is a problem, other than horror stories on Reddit and Elitetrader that probably happened on accounts with very high leverage.
parval
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by parval »

comeinvest wrote: Mon Nov 15, 2021 3:54 pm
Fxmove88 wrote: Mon Nov 15, 2021 1:31 pm
parval wrote: Mon Nov 15, 2021 11:31 am So I just realized the "Liquidate Last" option is grayed out on box spread, anyone else able to enable this? Googled a thread in some forums but didn't work for me.
you need to set liquidate last on each leg, rather than a box.
I am only able to set liquidate last on the legs after copying the legs to Option Trader / Strategy Builder.

I am too lazy to jump through these hoops for all of my boxes and on each box renewal, which I plan on doing about every 3 months. Unless I see evidence of the contrary, I currently believe when leverage is reasonably low like for example for purpose of a leveraged life cycle investment strategy, there is no conceivable risk of liquidation. The valuation of my options spreads in TWS seems to be stable, and from what I hear they are derived from some proprietary interpolated valuation model. IB seems to recognize and value the boxes as a whole for margining purposes. I have yet to see real evidence that there is a problem, other than horror stories on Reddit and Elitetrader that probably happened on accounts with very high leverage.
Mind going through a few scenarios regarding leverage and potential margin-calls?

For example if I put down 200k cash 50/50 SPY/TLT for 400k portfolio w/ 2-1 leverage, and short 200k worth of boxes.

At what point would I be in danger of getting liquidated? What about 600k w/ 3-1 leveage and short 400k boxes?

Looking at the docs on maintenance margin I can't tell if that number is based on portfolio margin?
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

parval wrote: Mon Nov 15, 2021 5:56 pm
comeinvest wrote: Mon Nov 15, 2021 3:54 pm
Fxmove88 wrote: Mon Nov 15, 2021 1:31 pm
parval wrote: Mon Nov 15, 2021 11:31 am So I just realized the "Liquidate Last" option is grayed out on box spread, anyone else able to enable this? Googled a thread in some forums but didn't work for me.
you need to set liquidate last on each leg, rather than a box.
I am only able to set liquidate last on the legs after copying the legs to Option Trader / Strategy Builder.

I am too lazy to jump through these hoops for all of my boxes and on each box renewal, which I plan on doing about every 3 months. Unless I see evidence of the contrary, I currently believe when leverage is reasonably low like for example for purpose of a leveraged life cycle investment strategy, there is no conceivable risk of liquidation. The valuation of my options spreads in TWS seems to be stable, and from what I hear they are derived from some proprietary interpolated valuation model. IB seems to recognize and value the boxes as a whole for margining purposes. I have yet to see real evidence that there is a problem, other than horror stories on Reddit and Elitetrader that probably happened on accounts with very high leverage.
Mind going through a few scenarios regarding leverage and potential margin-calls?

For example if I put down 200k cash 50/50 SPY/TLT for 400k portfolio w/ 2-1 leverage, and short 200k worth of boxes.

At what point would I be in danger of getting liquidated? What about 600k w/ 3-1 leveage and short 400k boxes?

Looking at the docs on maintenance margin I can't tell if that number is based on portfolio margin?
I am personally not an expert on margining. What I know is that with portfolio margin you get ca. 1:4 leverage, but that number is relatively irrelevant to me. I mostly look at my leverage ratio based on my equities allocation only, which I try to keep below 1:1.5, and which I hope will always be under 1:2. I also have treasury futures, which can reduce risk in times when they are negatively correlated with equities; but there is a risk that there is positive correlation in combination with a massive equity markets drawdown, a less likely but possible tail risk scenario, which might increase the maximum expected drawdown on the portfolio level.
parval
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by parval »

comeinvest wrote: Mon Nov 15, 2021 7:37 pm I am personally not an expert on margining. What I know is that with portfolio margin you get ca. 1:4 leverage, but that number is relatively irrelevant to me. I mostly look at my leverage ratio based on my equities allocation only, which I try to keep below 1:1.5, and which I hope will always be under 1:2. I also have treasury futures, which can reduce risk in times when they are negatively correlated with equities; but there is a risk that there is positive correlation in combination with a massive equity markets drawdown, a less likely but possible tail risk scenario, which might increase the maximum expected drawdown on the portfolio level.
i'm worried because my displayed margin doubled from 1.4 to 2.8 after selling the box, not sure if that's UI issue and there's soooo many margin numbers, mainly should i make sure excess liquidity > 0?
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

parval wrote: Tue Nov 16, 2021 8:05 am
comeinvest wrote: Mon Nov 15, 2021 7:37 pm I am personally not an expert on margining. What I know is that with portfolio margin you get ca. 1:4 leverage, but that number is relatively irrelevant to me. I mostly look at my leverage ratio based on my equities allocation only, which I try to keep below 1:1.5, and which I hope will always be under 1:2. I also have treasury futures, which can reduce risk in times when they are negatively correlated with equities; but there is a risk that there is positive correlation in combination with a massive equity markets drawdown, a less likely but possible tail risk scenario, which might increase the maximum expected drawdown on the portfolio level.
i'm worried because my displayed margin doubled from 1.4 to 2.8 after selling the box, not sure if that's UI issue and there's soooo many margin numbers, mainly should i make sure excess liquidity > 0?
Yes I think the excess liquidity is your target. But generally I'm the wrong person to ask intricate margin questions. What I know is that coming close to margin calls is not a fun experience. I suggest a strict rules-based leverage algo that de-leverages and re-leverages, if you use portfolio leverage.
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

parval wrote: Tue Nov 16, 2021 8:05 am i'm worried because my displayed margin doubled from 1.4 to 2.8 after selling the box, not sure if that's UI issue and there's soooo many margin numbers, mainly should i make sure excess liquidity > 0?
You must be on Reg T Margin. or if you are already in Portfolio Margin, your NLV dips below $100K.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

for big accounts, it is cheaper to borrow from IBKR at 0.75% rather than borrowing using a box at 1%, and just borrow as much as when the USD balance in the account becomes negative. The box has became popular and the rates have gone up so much.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by nalor511 »

Fxmove88 wrote: Tue Nov 16, 2021 10:36 pm for big accounts, it is cheaper to borrow from IBKR at 0.75% rather than borrowing using a box at 1%, and just borrow as much as when the USD balance in the account becomes negative. The box has became popular and the rates have gone up so much.
Ib will raise their rates
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

nalor511 wrote: Tue Nov 16, 2021 11:52 pm ib will raise their rates
maybe, but 2 year treasury yield is still low at 0.54%
https://ycharts.com/indicators/2_year_treasury_rate
The box rate is getting ahead of itself. I guess many people who read this forum is actively selling the box and were probably too impatient in getting the box filled at unfavorable rates and setting standards for the next box to be traded at also higher spreads over treasury. The box is technically default free as it is guaranteed by OCC, so >0.5% spread against treasury is quite rich. I used to be getting less than 0.5% rate for dec 2023 maturity just a few months ago.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

Fxmove88 wrote: Wed Nov 17, 2021 1:17 am
nalor511 wrote: Tue Nov 16, 2021 11:52 pm ib will raise their rates
maybe, but 2 year treasury yield is still low at 0.54%
https://ycharts.com/indicators/2_year_treasury_rate
The box rate is getting ahead of itself. I guess many people who read this forum is actively selling the box and were probably too impatient in getting the box filled at unfavorable rates and setting standards for the next box to be traded at also higher spreads over treasury. The box is technically default free as it is guaranteed by OCC, so >0.5% spread against treasury is quite rich. I used to be getting less than 0.5% rate for dec 2023 maturity just a few months ago.
I read somewhere that boxes account for only around 1% of options trading volume. That 1% includes some very large trades by institutions. I don't know, but I doubt that some retail dudes who have nothing better to do with their time than reading this forum and learning options basics, would move the needle.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by LoveTheBogle »

HELP REQUEST
I am contemplating using box spreads as a loan to bridge the gap between cash and construction costs to build a house rather than go through traditional construction financing. After the house is built then I’ll get traditional mortgage which will have enough proceeds to buy to close the box or hold the box to expiration and have the cash in the brokerage account for that date.

My main concern is really the margin component with the fluctuation in collateral at the broker.

I imagine Fidelity and IB have the same margin requirement rules but I could be mistaken. I don’t have IB but do have Fidelity so the question pertains to Fidelity specifically. I am fine moving in kind to IB but would prefer not to.

If the value of VTI in my Fidelity taxable account is $100,000 and there is nothing else in the account, how much box loan spread credit can I receive and then withdrawal into my checking account?

What risks are there, if any, if the value of the collateral VTI drops down to $70,000? $50,000? No selling of VTI just simply the value decreases because the share price decreases.

I’m looking at this for tax purposes so I don’t have to sell highly appreciated VTI shares in my taxable account because I really only need access to additional monies for less than 2 years.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by whodidntante »

LoveTheBogle wrote: Wed Nov 17, 2021 5:12 pm HELP REQUEST

If the value of VTI in my Fidelity taxable account is $100,000 and there is nothing else in the account, how much box loan spread credit can I receive and then withdrawal into my checking account?
Zero, because you would fail to qualify for portfolio margin at Fidelity. It's a minimum of 150k.
https://www.fidelity.com/products/atbt/ ... _Help.html
Freebee34
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Freebee34 »

whodidntante wrote: Wed Nov 17, 2021 9:43 pm
LoveTheBogle wrote: Wed Nov 17, 2021 5:12 pm HELP REQUEST

If the value of VTI in my Fidelity taxable account is $100,000 and there is nothing else in the account, how much box loan spread credit can I receive and then withdrawal into my checking account?
Zero, because you would fail to qualify for portfolio margin at Fidelity. It's a minimum of 150k.
https://www.fidelity.com/products/atbt/ ... _Help.html
That is incorrect. You can withdraw $50000 which is the limit for reg-t margin
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

LoveTheBogle wrote: Wed Nov 17, 2021 5:12 pm HELP REQUEST
I am contemplating using box spreads as a loan to bridge the gap between cash and construction costs to build a house rather than go through traditional construction financing. After the house is built then I’ll get traditional mortgage which will have enough proceeds to buy to close the box or hold the box to expiration and have the cash in the brokerage account for that date.

My main concern is really the margin component with the fluctuation in collateral at the broker.

I imagine Fidelity and IB have the same margin requirement rules but I could be mistaken. I don’t have IB but do have Fidelity so the question pertains to Fidelity specifically. I am fine moving in kind to IB but would prefer not to.

If the value of VTI in my Fidelity taxable account is $100,000 and there is nothing else in the account, how much box loan spread credit can I receive and then withdrawal into my checking account?

What risks are there, if any, if the value of the collateral VTI drops down to $70,000? $50,000? No selling of VTI just simply the value decreases because the share price decreases.

I’m looking at this for tax purposes so I don’t have to sell highly appreciated VTI shares in my taxable account because I really only need access to additional monies for less than 2 years.
My guess is that you can't withdraw very much as it is a single product portfolio - a very concentrated holding. You need to have a variety of stocks/etfs to get higher marginability. Just call Fidelity and ask the maximum you can withdraw and use Fidelity margin borrowing. after you succeed in withdrawing from your account, you just replace the margin borrowing with box. Please give us a feedback on how much you can borrow maximum and safely (ie no margin call if the market tanks by say 15-20%).
LoveTheBogle
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by LoveTheBogle »

whodidntante wrote: Wed Nov 17, 2021 9:43 pm
LoveTheBogle wrote: Wed Nov 17, 2021 5:12 pm HELP REQUEST

If the value of VTI in my Fidelity taxable account is $100,000 and there is nothing else in the account, how much box loan spread credit can I receive and then withdrawal into my checking account?
Zero, because you would fail to qualify for portfolio margin at Fidelity. It's a minimum of 150k.
https://www.fidelity.com/products/atbt/ ... _Help.html
Wow I didn’t know I was doing a trick question. :oops:

Instead of $100k VTI position let’s assume it is a $1 million VTI position to avoid any minimums issue. I simply used 100k because it is easily divisible to figure out any dollar amount.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by whodidntante »

LoveTheBogle wrote: Thu Nov 18, 2021 6:33 pm
whodidntante wrote: Wed Nov 17, 2021 9:43 pm
LoveTheBogle wrote: Wed Nov 17, 2021 5:12 pm HELP REQUEST

If the value of VTI in my Fidelity taxable account is $100,000 and there is nothing else in the account, how much box loan spread credit can I receive and then withdrawal into my checking account?
Zero, because you would fail to qualify for portfolio margin at Fidelity. It's a minimum of 150k.
https://www.fidelity.com/products/atbt/ ... _Help.html
Wow I didn’t know I was doing a trick question. :oops:

Instead of $100k VTI position let’s assume it is a $1 million VTI position to avoid any minimums issue. I simply used 100k because it is easily divisible to figure out any dollar amount.
Haha. Sorry.

It's gonna be about 500k, similar to Reg T. You would withdraw the cash and then refinance with a box spread. You aren't getting portfolio margin to get more leverage in this case, you are getting it so the offsetting hedge is accounted for by the portfolio margin rules. A concentrated position in VTI isn't going to help you withdraw more cash.

When the options settle, you are going on margin if you haven't rolled the position. Then, maintenance margin would apply.
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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
Your box trades website did not capture all the transactions as specified in your maturity dates . These past few days I sold boxes for 4 accounts and none were captured by your system.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by leviathan »

whodidntante wrote: Thu Nov 18, 2021 6:43 pm ...
A concentrated position in VTI isn't going to help you withdraw more cash. ...
Is this true? I thought that VTI would be quite favorable for risk-based margin in portfolio margin account.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by whodidntante »

leviathan wrote: Thu Nov 18, 2021 7:58 pm
whodidntante wrote: Thu Nov 18, 2021 6:43 pm ...
A concentrated position in VTI isn't going to help you withdraw more cash. ...
Is this true? I thought that VTI would be quite favorable for risk-based margin in portfolio margin account.
It's possible. I don't have a portfolio margin account with only VTI to test.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by zkn »

msun641 wrote: Mon Nov 08, 2021 6:28 am Also, shouldn't anyone with access to $10000 in box spread financing use it to buy an I bond? 7% for the next 6 months. Free money.
Free money? No. Free money + long CPI exposure :sharebeer
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

Fxmove88 wrote: Thu Nov 18, 2021 7:32 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
Your box trades website did not capture all the transactions as specified in your maturity dates . These past few days I sold boxes for 4 accounts and none were captured by your system.
Thanks for the data point. Sounds like it was for one of the tenors that shows up in at the bottom? And I assume you didn't leg out of it?

I've suspected that my brokerage isn't sending me all trades I'm subscribed to, so that might be the reason, but four is a lot to miss. I'll keep trying to find a better source in the mean time
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by whodidntante »

zkn wrote: Thu Nov 18, 2021 9:40 pm
msun641 wrote: Mon Nov 08, 2021 6:28 am Also, shouldn't anyone with access to $10000 in box spread financing use it to buy an I bond? 7% for the next 6 months. Free money.
Free money? No. Free money + long CPI exposure :sharebeer
Certainly there is a guaranteed return in that trade. But the loan itself will be profitable if inflation stays high.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by AlohaJoe »

whodidntante wrote: Thu Nov 18, 2021 8:02 pm
leviathan wrote: Thu Nov 18, 2021 7:58 pm
whodidntante wrote: Thu Nov 18, 2021 6:43 pm ...
A concentrated position in VTI isn't going to help you withdraw more cash. ...
Is this true? I thought that VTI would be quite favorable for risk-based margin in portfolio margin account.
It's possible. I don't have a portfolio margin account with only VTI to test.
Interactive Brokers has a margin calculator you can try out: https://www.interactivebrokers.com/en/t ... ulator.php
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by zkn »

whodidntante wrote: Thu Nov 18, 2021 9:58 pm
zkn wrote: Thu Nov 18, 2021 9:40 pm
msun641 wrote: Mon Nov 08, 2021 6:28 am Also, shouldn't anyone with access to $10000 in box spread financing use it to buy an I bond? 7% for the next 6 months. Free money.
Free money? No. Free money + long CPI exposure :sharebeer
Certainly there is a guaranteed return in that trade. But the loan itself will be profitable if inflation stays high.
I was just joking around that it is even better than free money because the return is positively related to inflation. So you don't only get a positive return for as long as you can borrow at negative real interest rates (and it seems a pretty safe bet we will be able to continue to do that for at least some time into the future), but you get an inflation hedge to go with your free money. Using box spreads to fund i bonds is a fantastic trade.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

adamhg wrote: Thu Nov 18, 2021 9:49 pm
Fxmove88 wrote: Thu Nov 18, 2021 7:32 pm
Your box trades website did not capture all the transactions as specified in your maturity dates . These past few days I sold boxes for 4 accounts and none were captured by your system.
Thanks for the data point. Sounds like it was for one of the tenors that shows up in at the bottom? And I assume you didn't leg out of it?

I've suspected that my brokerage isn't sending me all trades I'm subscribed to, so that might be the reason, but four is a lot to miss. I'll keep trying to find a better source in the mean time
I sold four Dec 16, 2022 boxes on Nov. 17. It was straight short of boxes instead of using call & put spreads
bling
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by bling »

if your broker is IBKR it's almost not worth it anymore.... the margin rate above 100k borrowed is 1.08% right now (and even lower the more you borrow), which is lower than the recent trades made on boxtrades.com which is currently around 1.1%.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

bling wrote: Fri Nov 19, 2021 7:13 am if your broker is IBKR it's almost not worth it anymore.... the margin rate above 100k borrowed is 1.08% right now (and even lower the more you borrow), which is lower than the recent trades made on boxtrades.com which is currently around 1.1%.
The IBKR rate changes on a daily basis whereas your comparing to a 2 year fixed rate (Dec 2023 exp). If you check the Dec 2022 exp, then it's about 0.67% and less if you go closer in
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by DMoogle »

adamhg wrote: Fri Nov 19, 2021 7:49 am
bling wrote: Fri Nov 19, 2021 7:13 am if your broker is IBKR it's almost not worth it anymore.... the margin rate above 100k borrowed is 1.08% right now (and even lower the more you borrow), which is lower than the recent trades made on boxtrades.com which is currently around 1.1%.
The IBKR rate changes on a daily basis whereas your comparing to a 2 year fixed rate (Dec 2023 exp). If you check the Dec 2022 exp, then it's about 0.67% and less if you go closer in
+1. 0.5% + locked in rate is definitely worth it, imo. We're Bogleheads, there are arguments here over 0.1% differences in expense ratios. Getting minimum interest rate is practically the same thing.

Plus, even if you're borrowing over $100k, the first $100k rate is at ~1.6%, not ~1.1%. I suspect the vast majority of people on here would be borrowing <$500k (probably far less), so it's pretty relevant.
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