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 »

adamhg wrote: Fri Dec 03, 2021 2:28 pm
comeinvest wrote: Wed Nov 03, 2021 11:43 pm
adamhg wrote: Wed Nov 03, 2021 9:11 pm
tananaev wrote: Wed Nov 03, 2021 7:44 pm I'm also having hard time getting fills. Could be that market rates are going higher because of upcoming fed tapering. Or could be just too many people found out about this trick and that's pushing prices higher.

When you say "current treasury rate", do you look at the 2 year or 3 year treasury? I'm selling Dec 23 options. I'm assuming 2 years, right?
Lowest somebody got today for Dec 23 was 0.9% ($981 for $1000 wide legs) so that could be a good place to start or just under there
But with your method of identifying box spreads, you never know if the retail investor SOLD or BOUGHT the spread, do you? My understanding is that in the options market, at least for multi-legged options spreads, opposing client orders are rarely matched, but dealers compete for incoming client orders, and the dealers' bots are programmed to required some spread. One time when I bought one of my boxes back, there was a ca. 0.1% difference in rates (ca. 0.45% vs. 0.55%) when I bought it back vs. the rate that I paid. What I'm saying is, we cannot expect to get a rate similar to a rate from the trades history, as long as we don't know on which side the retail investor vs. the dealer was, can we?
This has been bugging me until I realized that I'm actually storing off the current bid/ask for each leg of the box spread at the time the trade is made. So in an attempt to determine which side of the trade the market market is on, I thought maybe we could check whether each leg is closer to the bid or ask and aggregate it into an indicator.

You can kind of see the pattern. The blue (retail investor possibly BOUGHT the spread) is generally under the EMA line whereas the purple (mid point/unknown or retail investor possibly SOLD the spread) is all over the place.

I've read a number of papers that present methods to do this for individual trades, but does this work for spreads as well? Would publishing this change be overall helpful or add too much noise to the chart?

I also took the opportunity to filter out data points that were 2 sigma higher or lower than all previous points. So that should also clean up the charts a bit more. Thanks @parval for calling that issue out
Thanks for your effort. I think it's a valuable attempt, but I am skeptical:
- If I'm honest to myself, I don't see a consistent pattern on the charts of the blue vs the purple circles.
- "So in an attempt to determine which side of the trade the market market is on, I thought maybe we could check whether each leg is closer to the bid or ask and aggregate it into an indicator." - Can you please elaborate how exactly you make the determination? I'm a beginner in this area, but my understanding is that the "implied" trade prices of the legs of exchange-traded complex orders are assigned by the exchange based on some heuristic / theoretical fair values. So looking at the trade prices of individual legs to imply anything makes little sense, does it? I assume you looked at the average proximity or the traded price to the bid or ask over all 4 legs? If so, isn't it a self-fulfilling prophecy that the blue circles are at slightly lower yields on average?
- For most larger spreads, there is no meaningful quoted market of the individual legs.
- Even for smaller spreads with legs closer to the market price and that have higher volume, the traded price of the box is usually much closer to the midpoint / model implied fair value, than to the leg-implied bid/ask of the box. I think we might still extract information, but it's not that easy. Also, consider that often times a customer limit order for a specific leg might skew the midpoint vs if the bid and ask are both dealer quoted. I think pros and algos use interpolated data from a range of strike prices to arrive at a model fair value / midpoint / mark price, not from the bid/ask of one specific strike price.
- In summary, I'm not sure, especially for larger boxes with large leg-implied bid/ask spreads and low volume, if we can assume that the midpoint is the reference point, and/or that the proximity to the bid or ask of the box is meaningful. The actual algo that the bots are programmed with might be asymmetric. Maybe it's more realistic to assume that the clients got the more unfavorable side and the dealers the more favorable side of the trade in a client-dealer trade, i.e. split the circles into two parts. I don't know how dealer-to-dealer trades would be quoted, facilitated, or represented.
adamhg
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

comeinvest wrote: Fri Dec 03, 2021 6:46 pm
Thanks for your effort. I think it's a valuable attempt, but I am skeptical:
- If I'm honest to myself, I don't see a consistent pattern on the charts of the blue vs the purple circles.
- "So in an attempt to determine which side of the trade the market market is on, I thought maybe we could check whether each leg is closer to the bid or ask and aggregate it into an indicator." - Can you please elaborate how exactly you make the determination? I'm a beginner in this area, but my understanding is that the "implied" trade prices of the legs of exchange-traded complex orders are assigned by the exchange based on some heuristic / theoretical fair values. So looking at the trade prices of individual legs to imply anything makes little sense, does it? I assume you looked at the average proximity or the traded price to the bid or ask over all 4 legs? If so, isn't it a self-fulfilling prophecy that the blue circles are at slightly lower yields on average?
- For most larger spreads, there is no meaningful quoted market of the individual legs.
- Even for smaller spreads with legs closer to the market price and that have higher volume, the traded price of the box is usually much closer to the midpoint / model implied fair value, than to the leg-implied bid/ask of the box. I think we might still extract information, but it's not that easy. Also, consider that often times a customer limit order for a specific leg might skew the midpoint vs if the bid and ask are both dealer quoted. I think pros and algos use interpolated data from a range of strike prices to arrive at a model fair value / midpoint / mark price, not from the bid/ask of one specific strike price.
- In summary, I'm not sure, especially for larger boxes with large leg-implied bid/ask spreads and low volume, if we can assume that the midpoint is the reference point, and/or that the proximity to the bid or ask of the box is meaningful. The actual algo that the bots are programmed with might be asymmetric. Maybe it's more realistic to assume that the clients got the more unfavorable side and the dealers the more favorable side of the trade in a client-dealer trade, i.e. split the circles into two parts. I don't know how dealer-to-dealer trades would be quoted, facilitated, or represented.
Thanks for the feedback. I'm inclined to agree, but wanted to put it out there. I do think there's some data in the bid/ask/mid but mainly because these spreads would be taking both sides on both puts and calls, so in theory at least, if the actual value were skewed one way or another, my hope was that it would net out to the midpoint. But I recognize this would almost certainly be off for ATM vs ITM vs OTM options and if your spread went through a few strikes and or underlying price, would probably make the results that much noisier. I'm happy leaving it off for now and thinking more about it

In other news, I added a calculator to the bottom for people to more easily calculate their box spread trades after a few people asked for it

Image

"Cost of trade" is updated when long/short, dte, spread, quantity, or rate is changed, using this is the formula:

cost = (isLong ? 1 : -1) * spread / (rate / 100 * dte / 365.25 + 1) + (commission * 4 / 100)

Rate is updated when commission or cost is changed, using this is the formula:

rate = (spread / ((isLong ? 1 : -1) * (cost + (commission * 4 / 100))) - 1) * 365.25 / dte * 100

Changing the chart tenor updates the calculator's DTE and rate to the latest EMA. Everything is rounded to two decimal places, but I can see how more could be useful so please let me know what makes more sense.
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millennialmillions
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by millennialmillions »

adamhg wrote: Mon Dec 06, 2021 1:47 pm In other news, I added a calculator to the bottom for people to more easily calculate their box spread trades after a few people asked for it
Based on the screenshot, this looks super helpful so I won't have to pull up my other spreadsheet. FYI I'm not seeing anything live on the site yet (tried refreshing a few times).

I still haven't had any luck getting my 2 orders for a total of $200k filled. Ended today at a price of $993, 1000 spread for a Dec 2022 box. Implied rate of 0.69%. The variance in rates is surprising to me, even among similar size orders. $100k filled on Friday for 0.80% and $300k filled on Wednesday for 0.55%.
skierincolorado
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by skierincolorado »

millennialmillions wrote: Mon Dec 06, 2021 3:21 pm
adamhg wrote: Mon Dec 06, 2021 1:47 pm In other news, I added a calculator to the bottom for people to more easily calculate their box spread trades after a few people asked for it
Based on the screenshot, this looks super helpful so I won't have to pull up my other spreadsheet. FYI I'm not seeing anything live on the site yet (tried refreshing a few times).

I still haven't had any luck getting my 2 orders for a total of $200k filled. Ended today at a price of $993, 1000 spread for a Dec 2022 box. Implied rate of 0.69%. The variance in rates is surprising to me, even among similar size orders. $100k filled on Friday for 0.80% and $300k filled on Wednesday for 0.55%.
The market 2 year rate increased close to .1% from Wednesday to today so that's a big part of it. There were some swings of .05% in a matter of minutes last week.. there aren't enough box trades to show this kind of resolution on adams site so it looks like people are getting really good or bad fills.. but a big part of it is changes in interest rates between the two times.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

adamhg wrote: Mon Dec 06, 2021 1:47 pm In other news, I added a calculator to the bottom for people to more easily calculate their box spread trades after a few people asked for it

Image

"Cost of trade" is updated when long/short, dte, spread, quantity, or rate is changed, using this is the formula:

cost = (isLong ? 1 : -1) * spread / (rate / 100 * dte / 365.25 + 1) + (commission * 4 / 100)

Rate is updated when commission or cost is changed, using this is the formula:

rate = (spread / ((isLong ? 1 : -1) * (cost + (commission * 4 / 100))) - 1) * 365.25 / dte * 100

Changing the chart tenor updates the calculator's DTE and rate to the latest EMA. Everything is rounded to two decimal places, but I can see how more could be useful so please let me know what makes more sense.
I think it would be useful to see 2 rate fields: implied rate with commission, and implied rate without commission. The first one is your all-in financing rate for information purpose. The second one is for comparison purposes, and to benchmark your fill rate, as the "market" rate probably won't care about your commissions. (The commission goes to the broker and the exchange, not to the counterparty.)
parval
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by parval »

comeinvest wrote: Mon Dec 06, 2021 4:26 pm
adamhg wrote: Mon Dec 06, 2021 1:47 pm In other news, I added a calculator to the bottom for people to more easily calculate their box spread trades after a few people asked for it

Image

"Cost of trade" is updated when long/short, dte, spread, quantity, or rate is changed, using this is the formula:

cost = (isLong ? 1 : -1) * spread / (rate / 100 * dte / 365.25 + 1) + (commission * 4 / 100)

Rate is updated when commission or cost is changed, using this is the formula:

rate = (spread / ((isLong ? 1 : -1) * (cost + (commission * 4 / 100))) - 1) * 365.25 / dte * 100

Changing the chart tenor updates the calculator's DTE and rate to the latest EMA. Everything is rounded to two decimal places, but I can see how more could be useful so please let me know what makes more sense.
I think it would be useful to see 2 rate fields: implied rate with commission, and implied rate without commission. The first one is your all-in financing rate for information purpose. The second one is for comparison purposes, and to benchmark your fill rate, as the "market" rate probably won't care about your commissions. (The commission goes to the broker and the exchange, not to the counterparty.)
Think you can edit the commission input to see either of these?

Personally, I would simplify cost part of the formula so the user does the absolute math (since quote preview shows this anyways, and I don't even know/care about the single leg costs), but then again I'm a lazy dev

Loving the widget tho!
adamhg
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

comeinvest wrote: Mon Dec 06, 2021 4:26 pm I think it would be useful to see 2 rate fields: implied rate with commission, and implied rate without commission. The first one is your all-in financing rate for information purpose. The second one is for comparison purposes, and to benchmark your fill rate, as the "market" rate probably won't care about your commissions. (The commission goes to the broker and the exchange, not to the counterparty.)
parval wrote: Mon Dec 06, 2021 10:56 pm Think you can edit the commission input to see either of these?

Personally, I would simplify cost part of the formula so the user does the absolute math (since quote preview shows this anyways, and I don't even know/care about the single leg costs), but then again I'm a lazy dev

Loving the widget tho!
Good feedback from both. I like the ideas and went ahead and split out commissions from both the cost and rate
klaus14
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by klaus14 »

moneyflowin wrote: Sun Oct 24, 2021 7:24 pm IB's response assumes some reckless box writer who uses up almost all their available margin, and a tiny market move causes a margin call. That's not what we're concerned about.

We're concerned about a trader who uses margin conservatively and where a Flash Crash-like event causes B/A spreads to become enormous, causing a bogus margin call. I was at the computer during the Flash Crash and know exactly how wide B/A spreads got. IB hasn't addressed this scenario in their response probably because their auto-liq can't handle it.
From this reddit thread.
Portfolio margin traders can suffer margin calls if you have a bad mark/quote. This is a huge problem at Interactive Brokers. TD Ameritrade seems to be a lot smarter about this. You need to place a GTC close order at a very favorable unrealistic price to always quote your box.
do you do this? does this mean placing another sell order to borrow at say 0% to provide a quote? or do you need the opposite, buy order to lend at 10% ? or both?
Last edited by klaus14 on Tue Dec 07, 2021 12:42 am, edited 1 time in total.
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
klaus14
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by klaus14 »

calwatch wrote: Sun Nov 28, 2021 3:14 pm
sharukh wrote: Sun Nov 28, 2021 8:15 am Hi,

Shall we discuss on tax reporting mechanics as well ?
How to report, what forms to fill, will HR lock and TurboTax deluxe download handle these, holding for more than 1 year vs less than 1 year, capital loss carryover or deductions against other capital gains, etc

Thank you.
On IBKR you would get a Section 1256 contract summary on the 1099's at the end of the year. I assume the same is the case with other brokers. You mark to market your gains or losses, and do not report individual transactions. In my case, if the conditions hold, I would have $15,000 in paper losses to apply to other gains that year, applied 60/40 between short and long term losses.
But what would be the marked price in 1099? Will it be the mid point of bid ask? For boxes this is normally very wide.
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

klaus14 wrote: Tue Dec 07, 2021 12:19 am
moneyflowin wrote: Sun Oct 24, 2021 7:24 pm IB's response assumes some reckless box writer who uses up almost all their available margin, and a tiny market move causes a margin call. That's not what we're concerned about.

We're concerned about a trader who uses margin conservatively and where a Flash Crash-like event causes B/A spreads to become enormous, causing a bogus margin call. I was at the computer during the Flash Crash and know exactly how wide B/A spreads got. IB hasn't addressed this scenario in their response probably because their auto-liq can't handle it.
From this reddit thread.
Portfolio margin traders can suffer margin calls if you have a bad mark/quote. This is a huge problem at Interactive Brokers. TD Ameritrade seems to be a lot smarter about this. You need to place a GTC close order at a very favorable unrealistic price to always quote your box.
do you do this? does this mean placing another sell order to borrow at say 0% to provide a quote? or do you need the opposite, buy order to lend at 10% ? or both?
I personally am too lazy to do this as I have many boxes. But can we quantify the sentence that I market bold face? How big was the spread during the flash crash? Then also, what would be the mark price, or whatever price the margin calc of the spread is based on? Once we have an estimate of these data points, we could do a worst case scenario analysis, together with the overall leverage ratio of the portfolio, whether or not we are at risk of liquidation by IB.
klaus14
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by klaus14 »

comeinvest wrote: Tue Dec 07, 2021 1:27 am
klaus14 wrote: Tue Dec 07, 2021 12:19 am
moneyflowin wrote: Sun Oct 24, 2021 7:24 pm IB's response assumes some reckless box writer who uses up almost all their available margin, and a tiny market move causes a margin call. That's not what we're concerned about.

We're concerned about a trader who uses margin conservatively and where a Flash Crash-like event causes B/A spreads to become enormous, causing a bogus margin call. I was at the computer during the Flash Crash and know exactly how wide B/A spreads got. IB hasn't addressed this scenario in their response probably because their auto-liq can't handle it.
From this reddit thread.
Portfolio margin traders can suffer margin calls if you have a bad mark/quote. This is a huge problem at Interactive Brokers. TD Ameritrade seems to be a lot smarter about this. You need to place a GTC close order at a very favorable unrealistic price to always quote your box.
do you do this? does this mean placing another sell order to borrow at say 0% to provide a quote? or do you need the opposite, buy order to lend at 10% ? or both?
I personally am too lazy to do this as I have many boxes. But can we quantify the sentence that I market bold face? How big was the spread during the flash crash? Then also, what would be the mark price, or whatever price the margin calc of the spread is based on? Once we have an estimate of these data points, we could do a worst case scenario analysis, together with the overall leverage ratio of the portfolio, whether or not we are at risk of liquidation by IB.
What market values are assigned to your boxes in your daily reports? Are they close to the loan amount?

I added a 4000 - 50000 box to my watchlist and there wasn't any ask price. Would this lead IB to think my position requires infinite amount of money to close?

Here they say "cost to close" determines margin requirement.
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
comeinvest
Posts: 2669
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

klaus14 wrote: Tue Dec 07, 2021 1:30 am
comeinvest wrote: Tue Dec 07, 2021 1:27 am
klaus14 wrote: Tue Dec 07, 2021 12:19 am
moneyflowin wrote: Sun Oct 24, 2021 7:24 pm IB's response assumes some reckless box writer who uses up almost all their available margin, and a tiny market move causes a margin call. That's not what we're concerned about.

We're concerned about a trader who uses margin conservatively and where a Flash Crash-like event causes B/A spreads to become enormous, causing a bogus margin call. I was at the computer during the Flash Crash and know exactly how wide B/A spreads got. IB hasn't addressed this scenario in their response probably because their auto-liq can't handle it.
From this reddit thread.
Portfolio margin traders can suffer margin calls if you have a bad mark/quote. This is a huge problem at Interactive Brokers. TD Ameritrade seems to be a lot smarter about this. You need to place a GTC close order at a very favorable unrealistic price to always quote your box.
do you do this? does this mean placing another sell order to borrow at say 0% to provide a quote? or do you need the opposite, buy order to lend at 10% ? or both?
I personally am too lazy to do this as I have many boxes. But can we quantify the sentence that I market bold face? How big was the spread during the flash crash? Then also, what would be the mark price, or whatever price the margin calc of the spread is based on? Once we have an estimate of these data points, we could do a worst case scenario analysis, together with the overall leverage ratio of the portfolio, whether or not we are at risk of liquidation by IB.
What market values are assigned to your boxes in your daily reports? Are they close to the loan amount?

I added a 4000 - 50000 box to my watchlist and there wasn't any ask price. Would this lead IB to think my position requires infinite amount of money to close?

Here they say "cost to close" determines margin requirement.
Many of my boxes are very wide, where the legs have no bid/ask quotes. The margin requirement is very small (close to nothing) for all my SPX boxes. So they must use the mark price or something similar, maybe an estimate of the price that they think the box could be bought back. Also, they must be intelligent enough to treat the box as a box for margining, and not just the individual legs.
Last edited by comeinvest on Tue Dec 07, 2021 1:41 am, edited 1 time in total.
parval
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by parval »

adamhg wrote: Mon Dec 06, 2021 11:16 pm
comeinvest wrote: Mon Dec 06, 2021 4:26 pm I think it would be useful to see 2 rate fields: implied rate with commission, and implied rate without commission. The first one is your all-in financing rate for information purpose. The second one is for comparison purposes, and to benchmark your fill rate, as the "market" rate probably won't care about your commissions. (The commission goes to the broker and the exchange, not to the counterparty.)
parval wrote: Mon Dec 06, 2021 10:56 pm Think you can edit the commission input to see either of these?

Personally, I would simplify cost part of the formula so the user does the absolute math (since quote preview shows this anyways, and I don't even know/care about the single leg costs), but then again I'm a lazy dev

Loving the widget tho!
Good feedback from both. I like the ideas and went ahead and split out commissions from both the cost and rate
You're amazing! Gonna come off as a shill but I think your site is invaluable for setting up boxes, otherwise I'd be flying blind.

-edit noticed you added loading state, mad props :D
sharukh
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by sharukh »

Fxmove88 wrote: Wed Dec 01, 2021 1:34 pm
millennialmillions wrote: Tue Nov 30, 2021 10:33 pm
DMoogle wrote: Tue Nov 30, 2021 12:19 pm EDIT: I posted a screenshot of what the transaction should look like for a box on IBKR mobile here, you can use for reference: viewtopic.php?p=6223760#p6223760
Thanks DMoogle, your posts in this thread have been super helpful. I am going to sell my first box, starting small to ensure I have it right.

If this fills it would result in borrowing $9,950 at a rate of (4600-4500)/99.5 * 365/380 = 0.48%, which would be just slightly below the EMA line on boxtrades.com. Does this look right?

Image
This is just the reverse of the common practice and you would BUY such a box to get a loan.
You will notice that the quotations of Bid and Ask are negative numbers. It could be confusing to what we usually discuss in this forum. i.e. usually we try to get as much credit as possible to get a lower interest rate (i.e. higher selling number when selling the box).

But then it all depends on the perspective. If you have been getting the loan correctly then it's fine too. To me, a quote of negative number is confusing.
How do we close a box that is bought like this with a negative price. I bought for -198.5 , 2 units at 100 spread for loan of 20k.
So to close , I will sell this box for (to profit) higher than I paid. So -198. Profit and loss is showing the box at $50 gain. So like to close it while I am ahead. Thank you.
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

sharukh wrote: Tue Dec 07, 2021 4:24 pm How do we close a box that is bought like this with a negative price. I bought for -198.5 , 2 units at 100 spread for loan of 20k.
So to close , I will sell this box for (to profit) higher than I paid. So -198. Profit and loss is showing the box at $50 gain. So like to close it while I am ahead. Thank you.
It is simply confusing.
Just set up the box in the usual way. When you want to buy back the box, buy it back as low as possible. Like what a normal transaction does.
klaus14
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by klaus14 »

comeinvest wrote: Tue Dec 07, 2021 1:39 am Many of my boxes are very wide, where the legs have no bid/ask quotes. The margin requirement is very small (close to nothing) for all my SPX boxes. So they must use the mark price or something similar, maybe an estimate of the price that they think the box could be bought back. Also, they must be intelligent enough to treat the box as a box for margining, and not just the individual legs.
i sold a 4000-5000 Dec 23 box @ 1.14% today.

My observations:
- It doesn't really effect margin requirement. It only added $150 to margin req according to margin report.
- But it effects Net Liquidation Value. It assigned -$98310 market value to my box (vs my sell price was $97774)
- Assigned market value of my box is the sum of 4 legs.
- Each option leg is assigned a market value between bid and ask but not strictly the mid point.
- Bid offer was missing for the long call legs and i bid $1 :) Assigned market value didn't change.

This is all good news. Still, the risk may be: One of the short legs gets a very large ask price for some reason (market turmoil, no B/A and people troll like i did above) and box is marked a huge negative value more than the loan amount. I don't know if this can happen with IB's algorithm.

To mitigate this risk, I also placed GTC (+ outside regular hours) sell orders for two short legs with very high prices.
I also placed a %0 sell order for the whole box. (it didn't allow negative rates)
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

klaus14 wrote: Wed Dec 08, 2021 2:51 am
comeinvest wrote: Tue Dec 07, 2021 1:39 am Many of my boxes are very wide, where the legs have no bid/ask quotes. The margin requirement is very small (close to nothing) for all my SPX boxes. So they must use the mark price or something similar, maybe an estimate of the price that they think the box could be bought back. Also, they must be intelligent enough to treat the box as a box for margining, and not just the individual legs.
i sold a 4000-5000 Dec 23 box @ 1.14% today.

My observations:
- It doesn't really effect margin requirement. It only added $150 to margin req according to margin report.
- But it effects Net Liquidation Value. It assigned -$98310 market value to my box (vs my sell price was $97774)
- Assigned market value of my box is the sum of 4 legs.
- Each option leg is assigned a market value between bid and ask but not strictly the mid point.
- Bid offer was missing for the long call legs and i bid $1 :) Assigned market value didn't change.

This is all good news. Still, the risk may be: One of the short legs gets a very large ask price for some reason (market turmoil, no B/A and people troll like i did above) and box is marked a huge negative value more than the loan amount. I don't know if this can happen with IB's algorithm.

To mitigate this risk, I also placed GTC (+ outside regular hours) sell orders for two short legs with very high prices.
I also placed a %0 sell order for the whole box. (it didn't allow negative rates)
Thanks for sharing your data points.

The 2y treasury is currently at 0.69%, which means your implied cost was 0.45% above the risk-free rate, which is almost equal, maybe slightly better than what I got on average when rates were lower; but my maturities were shorter.

I have yet to see any credible evidence that the IB algo can do evil things, or ever did evil things, in accounts that are not insanely leveraged, or evidence that the risk is measurably higher than what IB could theoretically do with a plain margin leveraged account. (According to their terms, they can do almost anything. Although I think there are also some rules of the self-regulating financial industry associations.) I personally have too many boxes and I'm too lazy to put in gazillions of fake orders to trick the some algo, if there is no concrete or reasonably credible evidence how the algo works. I'm not saying there is no risk, I'm just saying I have not seen credible evidence so far. And I have spent a long time reading the articles and Reddit posts on the subject.

We could to a reasonable worst case scenario analysis, if we had some evidence of what options prices can do during market turmoils. I think with modest leverage, a lot has to happen until something bad happens to your excess liquidity. Of course, I guess we should calculate some additional "buffer", and de-leverage and re-leverage according to our investment and leverage plan.

Regardless, I'm not sure if I understand the purpose of the GTC sell orders for the short legs with "high prices". Say for example one of the legs that you sold was a call option, strike price $1, underlying price $10, you sold it for $9 (close to fair value). You put in a GTC order with limit $30. If anything, wouldn't that trick an algo into believing that the option that you sold is worth much more than $9, decreasing your net option value and the calculated NAV of your account?
klaus14
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by klaus14 »

comeinvest wrote: Wed Dec 08, 2021 3:19 am
Regardless, I'm not sure if I understand the purpose of the GTC sell orders for the short legs with "high prices". Say for example one of the legs that you sold was a call option, strike price $1, underlying price $10, you sold it for $9 (close to fair value). You put in a GTC order with limit $30. If anything, wouldn't that trick an algo into believing that the option that you sold is worth much more than $9, decreasing your net option value and the calculated NAV of your account?
In normal times you have B/A like 8.5/9.5. The worry is that it will be 8.5/200 for some reason. If i place a sell order at $30, instead it will be 8.5/30 which may still decrease the marked value of my position but it wouldn't trigger liquidation since my leverage is very mild.
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
comeinvest
Posts: 2669
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

klaus14 wrote: Wed Dec 08, 2021 3:31 am
comeinvest wrote: Wed Dec 08, 2021 3:19 am
Regardless, I'm not sure if I understand the purpose of the GTC sell orders for the short legs with "high prices". Say for example one of the legs that you sold was a call option, strike price $1, underlying price $10, you sold it for $9 (close to fair value). You put in a GTC order with limit $30. If anything, wouldn't that trick an algo into believing that the option that you sold is worth much more than $9, decreasing your net option value and the calculated NAV of your account?
In normal times you have B/A like 8.5/9.5. The worry is that it will be 8.5/200 for some reason. If i place a sell order at $30, instead it will be 8.5/30 which may still decrease the marked value of my position but it wouldn't trigger liquidation since my leverage is very mild.
Got it. But maybe it needs an executed trade at 200 to change the marked value? Whatever it takes or would take, have you ever read any credible report, blog entry, or forum comment supporting that conjecture that the algo is fooled by erroneous options quotes or trades and starts liquidating accounts, where the account was not close to the leverage limit anyways? If so, I guess that risk would apply to any sort of options trading, not just boxes.
klaus14
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by klaus14 »

comeinvest wrote: Wed Dec 08, 2021 4:08 am
klaus14 wrote: Wed Dec 08, 2021 3:31 am
comeinvest wrote: Wed Dec 08, 2021 3:19 am
Regardless, I'm not sure if I understand the purpose of the GTC sell orders for the short legs with "high prices". Say for example one of the legs that you sold was a call option, strike price $1, underlying price $10, you sold it for $9 (close to fair value). You put in a GTC order with limit $30. If anything, wouldn't that trick an algo into believing that the option that you sold is worth much more than $9, decreasing your net option value and the calculated NAV of your account?
In normal times you have B/A like 8.5/9.5. The worry is that it will be 8.5/200 for some reason. If i place a sell order at $30, instead it will be 8.5/30 which may still decrease the marked value of my position but it wouldn't trigger liquidation since my leverage is very mild.
Got it. But maybe it needs an executed trade at 200 to change the marked value? Whatever it takes or would take, have you ever read any credible report, blog entry, or forum comment supporting that conjecture that the algo is fooled by erroneous options quotes or trades and starts liquidating accounts, where the account was not close to the leverage limit anyways? If so, I guess that risk would apply to any sort of options trading, not just boxes.
Read this thread:
https://www.elitetrader.com/et/threads/ ... 064/page-8
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
jswizzle787
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by jswizzle787 »

@klaus

What do you do to ensure no auto-liq? If you just sold a 1000 spread at 980, would you just try to buy it back at 900 as a GTC? Does that impact margin requirements
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

klaus14 wrote: Wed Dec 08, 2021 4:22 am
comeinvest wrote: Wed Dec 08, 2021 4:08 am
klaus14 wrote: Wed Dec 08, 2021 3:31 am
comeinvest wrote: Wed Dec 08, 2021 3:19 am
Regardless, I'm not sure if I understand the purpose of the GTC sell orders for the short legs with "high prices". Say for example one of the legs that you sold was a call option, strike price $1, underlying price $10, you sold it for $9 (close to fair value). You put in a GTC order with limit $30. If anything, wouldn't that trick an algo into believing that the option that you sold is worth much more than $9, decreasing your net option value and the calculated NAV of your account?
In normal times you have B/A like 8.5/9.5. The worry is that it will be 8.5/200 for some reason. If i place a sell order at $30, instead it will be 8.5/30 which may still decrease the marked value of my position but it wouldn't trigger liquidation since my leverage is very mild.
Got it. But maybe it needs an executed trade at 200 to change the marked value? Whatever it takes or would take, have you ever read any credible report, blog entry, or forum comment supporting that conjecture that the algo is fooled by erroneous options quotes or trades and starts liquidating accounts, where the account was not close to the leverage limit anyways? If so, I guess that risk would apply to any sort of options trading, not just boxes.
Read this thread:
https://www.elitetrader.com/et/threads/ ... 064/page-8
I read most of the related threads on Elitetrader. I think there were a few threads where the original poster "disappeared" or did not provide all relevant info. If you read them too, can you point me to the page where it is concluded that the trader did not have other margin problems? Remember, Elitetrader and Reddit are different from Bogleheads (you know what I mean).
Last edited by comeinvest on Wed Dec 08, 2021 2:27 pm, edited 1 time in total.
klaus14
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by klaus14 »

comeinvest wrote: Wed Dec 08, 2021 11:57 am
klaus14 wrote: Wed Dec 08, 2021 4:22 am
comeinvest wrote: Wed Dec 08, 2021 4:08 am
klaus14 wrote: Wed Dec 08, 2021 3:31 am
comeinvest wrote: Wed Dec 08, 2021 3:19 am
Regardless, I'm not sure if I understand the purpose of the GTC sell orders for the short legs with "high prices". Say for example one of the legs that you sold was a call option, strike price $1, underlying price $10, you sold it for $9 (close to fair value). You put in a GTC order with limit $30. If anything, wouldn't that trick an algo into believing that the option that you sold is worth much more than $9, decreasing your net option value and the calculated NAV of your account?
In normal times you have B/A like 8.5/9.5. The worry is that it will be 8.5/200 for some reason. If i place a sell order at $30, instead it will be 8.5/30 which may still decrease the marked value of my position but it wouldn't trigger liquidation since my leverage is very mild.
Got it. But maybe it needs an executed trade at 200 to change the marked value? Whatever it takes or would take, have you ever read any credible report, blog entry, or forum comment supporting that conjecture that the algo is fooled by erroneous options quotes or trades and starts liquidating accounts, where the account was not close to the leverage limit anyways? If so, I guess that risk would apply to any sort of options trading, not just boxes.
Read this thread:
https://www.elitetrader.com/et/threads/ ... 064/page-8
I read most if the related threads on Elitetrader. I think there were a few threads where the original poster "disappeared" or did not provide all relevant info. If you read them too, can you point me to the page where it is concluded that the trader did not have other margin problems? Remember, Elitetrader and Reddit are different from Bogleheads (you know what I mean).
For example:
No, it was just that the spread went way OTM or ITM, I don't remember which, so the bid or ask on one side was really thin. As I'm sure you've seen, when this happens you get throwaway bids or asks that I assume are often left over GTC orders that no longer have any connection to reality that temporarily become the best bid/ask when the MMs go away or refresh their book. The Algorithm uses these as if they are the market, which would be fine except it ignores the fact that you have a vertical spread so your loss is limited to the spread. So The Algorithm will decide your 5 point SPX vertical spread is down 9 points and autoliquidate you, despite the fact that you could never, under any circumstance, lose more that 5 points on that cash settled European option spread. There's no no need for a volatile market to have this happen, it's actually somewhat routine. For a while I would put my own GTC orders in to ensure that never happened, but ended up moving to a professional broker that doesn't require me to play those silly games and provides real customer service.
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

klaus14 wrote: Wed Dec 08, 2021 12:19 pm
comeinvest wrote: Wed Dec 08, 2021 11:57 am
klaus14 wrote: Wed Dec 08, 2021 4:22 am
comeinvest wrote: Wed Dec 08, 2021 4:08 am
klaus14 wrote: Wed Dec 08, 2021 3:31 am

In normal times you have B/A like 8.5/9.5. The worry is that it will be 8.5/200 for some reason. If i place a sell order at $30, instead it will be 8.5/30 which may still decrease the marked value of my position but it wouldn't trigger liquidation since my leverage is very mild.
Got it. But maybe it needs an executed trade at 200 to change the marked value? Whatever it takes or would take, have you ever read any credible report, blog entry, or forum comment supporting that conjecture that the algo is fooled by erroneous options quotes or trades and starts liquidating accounts, where the account was not close to the leverage limit anyways? If so, I guess that risk would apply to any sort of options trading, not just boxes.
Read this thread:
https://www.elitetrader.com/et/threads/ ... 064/page-8
I read most if the related threads on Elitetrader. I think there were a few threads where the original poster "disappeared" or did not provide all relevant info. If you read them too, can you point me to the page where it is concluded that the trader did not have other margin problems? Remember, Elitetrader and Reddit are different from Bogleheads (you know what I mean).
For example:
No, it was just that the spread went way OTM or ITM, I don't remember which, so the bid or ask on one side was really thin. As I'm sure you've seen, when this happens you get throwaway bids or asks that I assume are often left over GTC orders that no longer have any connection to reality that temporarily become the best bid/ask when the MMs go away or refresh their book. The Algorithm uses these as if they are the market, which would be fine except it ignores the fact that you have a vertical spread so your loss is limited to the spread. So The Algorithm will decide your 5 point SPX vertical spread is down 9 points and autoliquidate you, despite the fact that you could never, under any circumstance, lose more that 5 points on that cash settled European option spread. There's no no need for a volatile market to have this happen, it's actually somewhat routine. For a while I would put my own GTC orders in to ensure that never happened, but ended up moving to a professional broker that doesn't require me to play those silly games and provides real customer service.
The user "Sig" on Elitetrader clearly hates IB. On the other hand I have not seen him presenting his portfolio setup anywhere, so it's impossible to judge whether the options were at the core of his liquidation problem, and if yes, under which circumstances, particularly his leverage ratio, and which of the limits that IB has and publishes he might have hit. I personally would at this point not jump through hoops and do gimmicks without evidence other than some anonymous user bashing IB on some message board. I can't validate or dismiss the hearsay, but the evidence that I do have is that the margin calculation of boxes at IB recognizes the box as a box and is close to zero, which I have a hard time reconciling with the idea that this would change if and when there is some leftover GTC order for an individual leg.
Last edited by comeinvest on Wed Dec 08, 2021 3:32 pm, edited 2 times in total.
klaus14
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by klaus14 »

comeinvest wrote: Wed Dec 08, 2021 3:27 pm
klaus14 wrote: Wed Dec 08, 2021 12:19 pm
comeinvest wrote: Wed Dec 08, 2021 11:57 am
klaus14 wrote: Wed Dec 08, 2021 4:22 am
comeinvest wrote: Wed Dec 08, 2021 4:08 am

Got it. But maybe it needs an executed trade at 200 to change the marked value? Whatever it takes or would take, have you ever read any credible report, blog entry, or forum comment supporting that conjecture that the algo is fooled by erroneous options quotes or trades and starts liquidating accounts, where the account was not close to the leverage limit anyways? If so, I guess that risk would apply to any sort of options trading, not just boxes.
Read this thread:
https://www.elitetrader.com/et/threads/ ... 064/page-8
I read most if the related threads on Elitetrader. I think there were a few threads where the original poster "disappeared" or did not provide all relevant info. If you read them too, can you point me to the page where it is concluded that the trader did not have other margin problems? Remember, Elitetrader and Reddit are different from Bogleheads (you know what I mean).
For example:
No, it was just that the spread went way OTM or ITM, I don't remember which, so the bid or ask on one side was really thin. As I'm sure you've seen, when this happens you get throwaway bids or asks that I assume are often left over GTC orders that no longer have any connection to reality that temporarily become the best bid/ask when the MMs go away or refresh their book. The Algorithm uses these as if they are the market, which would be fine except it ignores the fact that you have a vertical spread so your loss is limited to the spread. So The Algorithm will decide your 5 point SPX vertical spread is down 9 points and autoliquidate you, despite the fact that you could never, under any circumstance, lose more that 5 points on that cash settled European option spread. There's no no need for a volatile market to have this happen, it's actually somewhat routine. For a while I would put my own GTC orders in to ensure that never happened, but ended up moving to a professional broker that doesn't require me to play those silly games and provides real customer service.
The user "Sig" on Elitetrader clearly hates IB. On the other hand I have not seen him presenting his portfolio setup anywhere, so it's impossible to judge whether the options were at the core of his liquidation problem, and if yes, under which circumstances, particularly his leverage ratio, and which of the limits that IB has and publishes he might have hit. I personally would at this point not jump through hoops and do some gimmicks without evidence other than some anonymous user bashing IB on some message board.
Well, official IB doc also says "cost to close" determines margin requirement here.
Margin = MAX(1.02 x cost to close, Long Call Strike – Short Call Strike)
if "cost to close" is computed using current values of 4 legs it can go over the strike difference. it seems that above formula explicitly allows this.
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

klaus14 wrote: Wed Dec 08, 2021 3:30 pm
comeinvest wrote: Wed Dec 08, 2021 3:27 pm
klaus14 wrote: Wed Dec 08, 2021 12:19 pm
comeinvest wrote: Wed Dec 08, 2021 11:57 am
klaus14 wrote: Wed Dec 08, 2021 4:22 am
Read this thread:
https://www.elitetrader.com/et/threads/ ... 064/page-8
I read most if the related threads on Elitetrader. I think there were a few threads where the original poster "disappeared" or did not provide all relevant info. If you read them too, can you point me to the page where it is concluded that the trader did not have other margin problems? Remember, Elitetrader and Reddit are different from Bogleheads (you know what I mean).
For example:
No, it was just that the spread went way OTM or ITM, I don't remember which, so the bid or ask on one side was really thin. As I'm sure you've seen, when this happens you get throwaway bids or asks that I assume are often left over GTC orders that no longer have any connection to reality that temporarily become the best bid/ask when the MMs go away or refresh their book. The Algorithm uses these as if they are the market, which would be fine except it ignores the fact that you have a vertical spread so your loss is limited to the spread. So The Algorithm will decide your 5 point SPX vertical spread is down 9 points and autoliquidate you, despite the fact that you could never, under any circumstance, lose more that 5 points on that cash settled European option spread. There's no no need for a volatile market to have this happen, it's actually somewhat routine. For a while I would put my own GTC orders in to ensure that never happened, but ended up moving to a professional broker that doesn't require me to play those silly games and provides real customer service.
The user "Sig" on Elitetrader clearly hates IB. On the other hand I have not seen him presenting his portfolio setup anywhere, so it's impossible to judge whether the options were at the core of his liquidation problem, and if yes, under which circumstances, particularly his leverage ratio, and which of the limits that IB has and publishes he might have hit. I personally would at this point not jump through hoops and do some gimmicks without evidence other than some anonymous user bashing IB on some message board.
Well, official IB doc also says "cost to close" determines margin requirement here.
Margin = MAX(1.02 x cost to close, Long Call Strike – Short Call Strike)
if "cost to close" is computed using current values of 4 legs it can go over the strike difference. it seems that above formula explicitly allows this.
The page you cited is for Reg T margin. I think most people in this thread use portfolio margin. You tested before that a limit order for one leg did not change the margin requirement. Also, what would cost to close be if there are no quotes. If "cost to close" is nowhere defined, we cannot draw any conclusions from this formula.
I can't validate or dismiss the hearsay, but the evidence that I do have is that the margin calculation of boxes at IB recognizes the box as a box and is close to zero, which I have a hard time reconciling with the idea that this would change if and when there is some leftover GTC order for an individual leg.
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millennialmillions
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by millennialmillions »

millennialmillions wrote: Mon Dec 06, 2021 3:21 pm I still haven't had any luck getting my 2 orders for a total of $200k filled. Ended today at a price of $993, 1000 spread for a Dec 2022 box. Implied rate of 0.69%. The variance in rates is surprising to me, even among similar size orders. $100k filled on Friday for 0.80% and $300k filled on Wednesday for 0.55%.
Finally filled at 0.74%. Was hoping for lower, but I can't feel too bad given $600k filled at the same rate right after me and $10M filled at 0.69% right before me. If IBKR's rates stay the same, will save me about $700 in interest.
DMoogle
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by DMoogle »

I've had a box open for about two weeks. I originally set it up for $87.5k, but changed it a few days ago to $100k. It's marked for Dec 2023, and I've slowly increased the interest rate from ~0.8% to now currently 1.112% (does not include commission). It still hasn't filled yet.

Really odd to see boxes fill at lower rates. My guess is that they're the result of some "private" behind-the-scenes transactions that are conducted on the open market.

If Dec 2022 is getting filled at 0.74%, and I haven't been able to fill at 1.112%, that implies a forward rate of 1.48%. Are interest rates expected to raise that much? I'm wondering if I'd be better off just going for the Dec 2022 at a lower rate.

Nice simple calculator I found: https://www.omnicalculator.com/finance/forward-rate

EDIT: I had my time periods wrong; Dec '22 is a one-year loan, Dec '23 is a two-year loan. I had two and three before. The forward rate is 1.48%.
Last edited by DMoogle on Thu Dec 09, 2021 12:20 pm, edited 1 time in total.
Chuck
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Chuck »

DMoogle wrote: Thu Dec 09, 2021 10:33 am Really odd to see boxes fill at lower rates. My guess is that they're the result of some "private" behind-the-scenes transactions that are conducted on the open market.
I filled an order for Dec22 $20,000 at 0.84% on Monday, and I'm an ordinary retail customer. Don't ask me why it works sometimes and not others.
DMoogle
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by DMoogle »

Finally got my Dec '23 5000-4000 spread filled @ 977.50; 1.145% after a 2-3 weeks of periodically increasing the rate (eventually in 0.15 increments).
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

One has to be patient in getting a box filled. Just do a GTC limit order for selling the box. If you insist on getting filled immediately then you will be paying high interest.

The following study shows that Box interest rate has been about 0.38% above corresponding US treasury yield for various tenor. And during the crisis of 2008, the spread goes up triple.

https://www.stern.nyu.edu/sites/default ... a_19_1.pdf

Image

Image

Dec 2022 Box rate should be around 0.65%, given that the 1 year US treasury yield is at 0.27%
https://ycharts.com/indicators/1_year_treasury_rate

Correspondingly, Dec 2023 Box rate should be around 1.05% with the current 2 year US treasury yield at 0.67%
https://ycharts.com/indicators/2_year_treasury_rate
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

Very useful information!

What is the difference between "government bond" and "treasury bill" for the short maturities in the chart?

LIBOR might be more correlated to the box spread fill rates than treasury rates.

While this information is very useful, I'm still not completely understanding the mechanics of the market. I got immediate fills around 0.45-0.5% above T-Bills for maturities of a few months. I know I might have slightly overpaid, but I thought it was a tradeoff vs. having to pay much higher brokerage margin rates for a number of days, and/or the risk of the market moving away from my order. I don't know if the fills for more aggressive limit orders (that don't fill immediately) are controlled by market fluctuations of interest rates and/or spreads between treasuries and LIBOR, or by random changes in liquidity (demand/supply) for options. In the first case, waiting for better fills might not be advantageous in the long run average (similar to when you use "stale limit orders" for stocks).
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

One of accounts under my management is on Reg T Margin and got a Margin Call and it has a Box spread financing with unutilized cash.
Does anyone know how long IBKR give time for such margin call notice before starting to liquidate some positions?

Image Image
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

comeinvest wrote: Sun Dec 12, 2021 5:43 pm Very useful information!

What is the difference between "government bond" and "treasury bill" for the short maturities in the chart?

LIBOR might be more correlated to the box spread fill rates than treasury rates.

While this information is very useful, I'm still not completely understanding the mechanics of the market. I got immediate fills around 0.45-0.5% above T-Bills for maturities of a few months. I know I might have slightly overpaid, but I thought it was a tradeoff vs. having to pay much higher brokerage margin rates for a number of days, and/or the risk of the market moving away from my order. I don't know if the fills for more aggressive limit orders (that don't fill immediately) are controlled by market fluctuations of interest rates and/or spreads between treasuries and LIBOR, or by random changes in liquidity (demand/supply) for options. In the first case, waiting for better fills might not be advantageous in the long run average (similar to when you use "stale limit orders" for stocks).
if you read the pdf, the Box rate is related to Treasury Rate + some convenience spread. While Libor rate is higher than the Box rate, it is manipulated by some banks in London as revealed by SEC lawsuits; it is not really established through market mechanism.
DMoogle
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by DMoogle »

Fascinating info Fxmove, had no idea it had been formally studied at all.
Fxmove88 wrote: Sun Dec 12, 2021 8:13 pm One of accounts under my management is on Reg T Margin and got a Margin Call and it has a Box spread financing with unutilized cash.
Does anyone know how long IBKR give time for such margin call notice before starting to liquidate some positions?
I've always heard that they liquidate IMMEDIATELY without giving you a chance to pick and choose what you want. One of the downsides of being with IBKR. I'd contact customer support and see what they say. Could you post back if you find an answer?
Fxmove88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Fxmove88 »

DMoogle wrote: Sun Dec 12, 2021 10:05 pm Fascinating info Fxmove, had no idea it had been formally studied at all.

I've always heard that they liquidate IMMEDIATELY without giving you a chance to pick and choose what you want. One of the downsides of being with IBKR. I'd contact customer support and see what they say. Could you post back if you find an answer?
A simple wire transfer from my client avoided liquidation just before the market opens in Europe where his accounts have some securities in. And also I needed to send a web ticket for IBKR people to refresh its SMA margin call calculation.
Before sending the web ticket
Image

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

Post by Kbg »

Call me naive, but I have a very difficult time believing IB can't figure out how to program a box trade into their software. I do believe there are idiots when it comes to using and managing leverage. I would venture some of the stories that keep getting thrown into this thread, if full details were known, had more to do with the entire holdings/account vs. margin than a spurious quote.
Impatience
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Impatience »

DMoogle wrote: Sun Dec 12, 2021 10:05 pm Fascinating info Fxmove, had no idea it had been formally studied at all.
Fxmove88 wrote: Sun Dec 12, 2021 8:13 pm One of accounts under my management is on Reg T Margin and got a Margin Call and it has a Box spread financing with unutilized cash.
Does anyone know how long IBKR give time for such margin call notice before starting to liquidate some positions?
I've always heard that they liquidate IMMEDIATELY without giving you a chance to pick and choose what you want. One of the downsides of being with IBKR. I'd contact customer support and see what they say. Could you post back if you find an answer?
I’ve been margin called by IBKR a few times (it was no big deal) and they did not live up to their infamy. I bounced around in negative excess liquidity for long enough to bounce back out again. Then it fell back and then they finally got me. But, each time they only closed enough positions to eke me back into a safe zone. Maybe they take it easy on small accounts.

Also they can’t do anything during premarket or after hours so you can try and fix yourself then.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

For my strategic loan roll planning, I'm curious how the "pre-payment penalty" of box spreads fluctuates with the length to maturity. For example, my asset allocation requires de-levering, or I have an unexpected cash flow. Does anybody have any experience or look into this? I think *if* the interest rate differential between buying and selling the box were constant, the absolute pre-payment penalty would increase with maturity.
klaus14
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by klaus14 »

comeinvest wrote: Tue Dec 14, 2021 12:56 am For my strategic loan roll planning, I'm curious how the "pre-payment penalty" of box spreads fluctuates with the length to maturity. For example, my asset allocation requires de-levering, or I have an unexpected cash flow. Does anybody have any experience or look into this? I think *if* the interest rate differential between buying and selling the box were constant, the absolute pre-payment penalty would increase with maturity.
why there would be any penalty? You'd just sell the loan to someone else.
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
Kbg
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Kbg »

Impatience wrote: Mon Dec 13, 2021 10:57 pm I’ve been margin called by IBKR a few times (it was no big deal) and they did not live up to their infamy. I bounced around in negative excess liquidity for long enough to bounce back out again. Then it fell back and then they finally got me. But, each time they only closed enough positions to eke me back into a safe zone. Maybe they take it easy on small accounts.

Also they can’t do anything during premarket or after hours so you can try and fix yourself then.
Speaking of idiots managing leverage...been there, done that and with IB to be specific.

They never did anything that wasn't clearly stated they would do and I knew what I needed to do to remedy the situation.

If folks are going to get edgy with margin balances I highly recommend becoming familiar with "Liquidate Last."

And for the record, don't be edgy with margin. Mostly likely you will regret it, eventually.
AlohaJoe
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by AlohaJoe »

Impatience wrote: Mon Dec 13, 2021 10:57 pm I’ve been margin called by IBKR a few times (it was no big deal) and they did not live up to their infamy.
I've looked for any stories of people wiped out by forced liquidation by IBKR during the ETF Flash Crash, 2008 crash, 2020 crash, etc and have never seen even a rumor of a story of it happening. Doesn't mean it didn't happen -- not everyone is going to write about it on the web. But I kinda expected to find something given the number of customers they have and never did.
parval
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by parval »

Kbg wrote: Tue Dec 14, 2021 9:21 am
Impatience wrote: Mon Dec 13, 2021 10:57 pm I’ve been margin called by IBKR a few times (it was no big deal) and they did not live up to their infamy. I bounced around in negative excess liquidity for long enough to bounce back out again. Then it fell back and then they finally got me. But, each time they only closed enough positions to eke me back into a safe zone. Maybe they take it easy on small accounts.

Also they can’t do anything during premarket or after hours so you can try and fix yourself then.
Speaking of idiots managing leverage...been there, done that and with IB to be specific.

They never did anything that wasn't clearly stated they would do and I knew what I needed to do to remedy the situation.

If folks are going to get edgy with margin balances I highly recommend becoming familiar with "Liquidate Last."

And for the record, don't be edgy with margin. Mostly likely you will regret it, eventually.
Can you give some advice? I'm planning to switch to futures (es/zn/zf) and lever up. One thing I noticed is when I added box spreads, IBKR seems to display the wrong leverage for the portfolio (it sums both long and short positions of the box along w/ the other positions). So instead, I should just rely on excess liquidity and make sure it never comes close to 0 right? I have portfolio margin fwiw.
klaus14
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Joined: Sun Nov 25, 2018 6:43 pm

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

Post by klaus14 »

parval wrote: Tue Dec 14, 2021 1:58 pm
Kbg wrote: Tue Dec 14, 2021 9:21 am
Impatience wrote: Mon Dec 13, 2021 10:57 pm I’ve been margin called by IBKR a few times (it was no big deal) and they did not live up to their infamy. I bounced around in negative excess liquidity for long enough to bounce back out again. Then it fell back and then they finally got me. But, each time they only closed enough positions to eke me back into a safe zone. Maybe they take it easy on small accounts.

Also they can’t do anything during premarket or after hours so you can try and fix yourself then.
Speaking of idiots managing leverage...been there, done that and with IB to be specific.

They never did anything that wasn't clearly stated they would do and I knew what I needed to do to remedy the situation.

If folks are going to get edgy with margin balances I highly recommend becoming familiar with "Liquidate Last."

And for the record, don't be edgy with margin. Mostly likely you will regret it, eventually.
Can you give some advice? I'm planning to switch to futures (es/zn/zf) and lever up. One thing I noticed is when I added box spreads, IBKR seems to display the wrong leverage for the portfolio (it sums both long and short positions of the box along w/ the other positions). So instead, I should just rely on excess liquidity and make sure it never comes close to 0 right? I have portfolio margin fwiw.
which leverage number you are referring to. I don't see it.
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
klaus14
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by klaus14 »

is there a case for one to take other side of this trade? I mean loaning your cash?

Instead of buying a 5 year Treasury, It is probably better to buy a 5y box ?
- Rate will be 0.4% high
- Return will be capital gains so favorable tax treatment.

Obviously you can't lever this trade. But any other catch?
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
parval
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by parval »

klaus14 wrote: Tue Dec 14, 2021 2:25 pm
parval wrote: Tue Dec 14, 2021 1:58 pm
Kbg wrote: Tue Dec 14, 2021 9:21 am
Impatience wrote: Mon Dec 13, 2021 10:57 pm I’ve been margin called by IBKR a few times (it was no big deal) and they did not live up to their infamy. I bounced around in negative excess liquidity for long enough to bounce back out again. Then it fell back and then they finally got me. But, each time they only closed enough positions to eke me back into a safe zone. Maybe they take it easy on small accounts.

Also they can’t do anything during premarket or after hours so you can try and fix yourself then.
Speaking of idiots managing leverage...been there, done that and with IB to be specific.

They never did anything that wasn't clearly stated they would do and I knew what I needed to do to remedy the situation.

If folks are going to get edgy with margin balances I highly recommend becoming familiar with "Liquidate Last."

And for the record, don't be edgy with margin. Mostly likely you will regret it, eventually.
Can you give some advice? I'm planning to switch to futures (es/zn/zf) and lever up. One thing I noticed is when I added box spreads, IBKR seems to display the wrong leverage for the portfolio (it sums both long and short positions of the box along w/ the other positions). So instead, I should just rely on excess liquidity and make sure it never comes close to 0 right? I have portfolio margin fwiw.
which leverage number you are referring to. I don't see it.
On the website, 2nd tab (after Home) for me is Portfolio.

Leverage (right above Convert Currency) says 2.9, even though I'm basically at 1.5, but it's summing each of the box's legs into "Security Gross Position".

If you have a box open I think you'll also see overly high leverage, but lmk if not.
gougou
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by gougou »

klaus14 wrote: Tue Dec 14, 2021 2:55 pm is there a case for one to take other side of this trade? I mean loaning your cash?

Instead of buying a 5 year Treasury, It is probably better to buy a 5y box ?
- Rate will be 0.4% high
- Return will be capital gains so favorable tax treatment.

Obviously you can't lever this trade. But any other catch?
SPX options are only available about 2 years out so you can only buy 2 year boxes. I think SPX boxes are great for short term cash equivalent holdings because the gains are capital gains instead of interest income.
The sillier the market’s behavior, the greater the opportunity for the business like investor.
klaus14
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Joined: Sun Nov 25, 2018 6:43 pm

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

Post by klaus14 »

parval wrote: Tue Dec 14, 2021 3:21 pm
klaus14 wrote: Tue Dec 14, 2021 2:25 pm
parval wrote: Tue Dec 14, 2021 1:58 pm
Kbg wrote: Tue Dec 14, 2021 9:21 am
Impatience wrote: Mon Dec 13, 2021 10:57 pm I’ve been margin called by IBKR a few times (it was no big deal) and they did not live up to their infamy. I bounced around in negative excess liquidity for long enough to bounce back out again. Then it fell back and then they finally got me. But, each time they only closed enough positions to eke me back into a safe zone. Maybe they take it easy on small accounts.

Also they can’t do anything during premarket or after hours so you can try and fix yourself then.
Speaking of idiots managing leverage...been there, done that and with IB to be specific.

They never did anything that wasn't clearly stated they would do and I knew what I needed to do to remedy the situation.

If folks are going to get edgy with margin balances I highly recommend becoming familiar with "Liquidate Last."

And for the record, don't be edgy with margin. Mostly likely you will regret it, eventually.
Can you give some advice? I'm planning to switch to futures (es/zn/zf) and lever up. One thing I noticed is when I added box spreads, IBKR seems to display the wrong leverage for the portfolio (it sums both long and short positions of the box along w/ the other positions). So instead, I should just rely on excess liquidity and make sure it never comes close to 0 right? I have portfolio margin fwiw.
which leverage number you are referring to. I don't see it.
On the website, 2nd tab (after Home) for me is Portfolio.

Leverage (right above Convert Currency) says 2.9, even though I'm basically at 1.5, but it's summing each of the box's legs into "Security Gross Position".

If you have a box open I think you'll also see overly high leverage, but lmk if not.
thanks. found it. i think they just divide gross position to net liquidation. the also have a seperate limit on this ratio. i think it like 50.
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
klaus14
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by klaus14 »

gougou wrote: Tue Dec 14, 2021 3:25 pm
klaus14 wrote: Tue Dec 14, 2021 2:55 pm is there a case for one to take other side of this trade? I mean loaning your cash?

Instead of buying a 5 year Treasury, It is probably better to buy a 5y box ?
- Rate will be 0.4% high
- Return will be capital gains so favorable tax treatment.

Obviously you can't lever this trade. But any other catch?
SPX options are only available about 2 years out so you can only buy 2 year boxes. I think SPX boxes are great for short term cash equivalent holdings because the gains are capital gains instead of interest income.
I think it is 5 years. I see the quotes for Dec 26
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

klaus14 wrote: Tue Dec 14, 2021 3:39 pm
gougou wrote: Tue Dec 14, 2021 3:25 pm
klaus14 wrote: Tue Dec 14, 2021 2:55 pm is there a case for one to take other side of this trade? I mean loaning your cash?

Instead of buying a 5 year Treasury, It is probably better to buy a 5y box ?
- Rate will be 0.4% high
- Return will be capital gains so favorable tax treatment.

Obviously you can't lever this trade. But any other catch?
SPX options are only available about 2 years out so you can only buy 2 year boxes. I think SPX boxes are great for short term cash equivalent holdings because the gains are capital gains instead of interest income.
I think it is 5 years. I see the quotes for Dec 26
Quite an interesting idea to invest in a 5-year box instead of the 5-year treasury. In this case, no tax benefit, but an additional ca 0.35% p.a. The drawback would be the additional risk from spread widening in case of a crash: viewtopic.php?p=6377287&sid=d433f3f5083 ... 9#p6377287
So if we assume a 5-year box, the spread widens from 35bp to 100bp -> 65bp, the additional drawdown would be 5% * 0.65 = 3.25%. The risk to reward ratio of moving from treasury future to box (as in assumed max drawdown divided by expected annual return) would be ca. 10, very similar to a stock market investment. This excess drawdown risk would be correlated to the stock market. In summary, I see no point doing it.

On the other hand, if my math is right, selling boxes for financing would provide a little bit of additional cushion during stock market crash scenarios. Maybe that's one of the reasons why the implied rate is a bit above that of treasuries.

EDIT: I forgot how treasury futures implied financing rates behave during stock market crashes. I think there was a discussion in the HFEA or mHFEA thread.
Last edited by comeinvest on Tue Dec 14, 2021 4:06 pm, edited 1 time in total.
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