- The best rates (treasury + 15 basis points) are available for those borrowing in large amounts ($500K+)
- The strike levels can matter for speed of execution. Generally symmetric around ATM gets the quickest fills.
- For faster execution (less than 2 hours) and better pricing I found that breaking up the trade into call spreads and put spreads is more effective. When submitting the entire box it would take DAYS for the trade to execute at a higher interest rate (0.75%+)
- usually the last term is the least liquid. the second last one is usually much better
- during market panics (e.g. covid, fall 2008) the required margin from the OCC on the box spread can increase. It will be up to your broker and their risk systems to decide if a liquidation is warranted
- despite what is said above, the margin surcharge in absolute terms is usually low. it might rise from 3% to 5% or 7%. in practical terms it has not impacted my portfolio but it may for those that are highly levered
- The tax deduction is a significant benefit for box spreads vs margin loans
- to offset what is said above with rising rates and the 1256 tax status you may receive a tax bill come December
Code: Select all
+------------+------------+--------------+---------------+-------------------+------------------+------------+----------+----------------+------------------+-----------------+--------+-----------------------+
| Trade Date | Expiry | Lower Strike | Higher Strike | Short Call Spread | Short Put Spread | Multiplier | Quantity | days to expiry | Short Box Spread | Value At Expiry | PV | Implied Interest Rate |
+------------+------------+--------------+---------------+-------------------+------------------+------------+----------+----------------+------------------+-----------------+--------+-----------------------+
| 2021-08-30 | 2023-06-16 | 4,450 | 4,650 | $113.5 | $84.5 | 100 | 1 | 655 | $198 | $200 | $2.00 | 0.56% |
| 2021-06-10 | 2023-12-15 | 3,900 | 4,500 | $330.0 | $260.0 | 100 | 3 | 918 | $590 | $600 | $10.00 | 0.67% |
| 2021-05-27 | 2022-12-16 | 4,100 | 4,300 | $115.0 | $83.0 | 100 | 1 | 568 | $198 | $200 | $2.03 | 0.66% |
| 2021-04-16 | 2022-12-16 | 4,050 | 4,250 | $114.5 | $83.6 | 100 | 1 | 609 | $198 | $200 | $1.83 | 0.55% |
| 2021-02-09 | 2022-12-16 | 3,700 | 3,900 | $118.5 | $79.5 | 100 | 1 | 675 | $198 | $200 | $2.03 | 0.55% |
| 2020-12-17 | 2022-12-16 | 3,600 | 3,800 | $111.5 | $85.8 | 100 | 1 | 729 | $197 | $200 | $2.73 | 0.69% |
| 2020-11-13 | 2022-06-17 | 3,450 | 3,650 | $112.7 | $83.7 | 100 | 1 | 581 | $196 | $200 | $3.53 | 1.13% |
| 2020-07-29 | 2021-12-17 | 3,150 | 3,350 | $114.2 | $83.8 | 100 | 3 | 506 | $198 | $200 | $2.03 | 0.74% |
| 2020-06-15 | 2021-12-17 | 2,900 | 3,100 | $113.8 | $83.9 | 100 | 3 | 550 | $198 | $200 | $2.28 | 0.76% |
| 2020-03-11 | 2021-06-18 | 2,700 | 2,900 | $105.9 | $92.2 | 100 | 9 | 464 | $198 | $200 | $1.88 | 0.75% |
+------------+------------+--------------+---------------+-------------------+------------------+------------+----------+----------------+------------------+-----------------+--------+-----------------------+