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

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

Post by thinkofanamefast »

I'm on here waiting for an answer to my above question, and noticed yours. If you mean interest rate, it's not even close. IBKR is 2.8% approx on their free trading level, or 1.8% going down to .8% on their pro level, depending on amount in your account. Pro level means you pay small fee per trade. I just checked Schwab and for an account between 0-200k it's 8 to 8.35% depending on total amount. I don't see why anyone wouldn't use IBKR if using margin.
hithere
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by hithere »

thinkofanamefast wrote: Sun Feb 27, 2022 4:00 pm 2 questions for you or anyone seeing this regarding the scary mentions of being automatically liquidated due to large market moves. I have portfolio margin at IB and TOS and would only do this on SPX (European):

1. EDIT This question I'm removing was regarding forced liquidation of a seemingly safe box spread, but I searched this long thread again and realize the only chance of being force liquidated is due to IB or TOS margin calling on other investments you may have used this box spread credit to finance. One guy was going to use the money to put in a 2x SPY long situation. A forced liquidation on a bunch of these would be scary, since I'd be using SPX and could result in millions of dollars at risk overnight.

2. A lot of people say this money has to stay available in your account and can't be used. Wouldn't a workaround be to do your leveraged trades margined to the hilt, and THEN do this box trade to pay down that margin loan in your account with the credit? So essentially you could use it for leverage? Or does that only apply to Reg t and not in a portfolio margin account where you don't need this workaround since you can use the money right away?
1. Keep in mind that in theory IB could increase the margin requirements for short boxes. How likely that is, is anyone's guess.

2. That's probably a Reg-T thing, as you said. The margin requirements there are quite different. In my PM account, I just receive the money from short boxes as cash and hence can use it however I like - I can buy securities with it, withdraw it, or just leave it in my cash balance. It doesn't matter if prior to the box trade your cash balance is negative (i.e. you have a margin loan), or positive.
richardm
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by richardm »

thinkofanamefast wrote: Fri Mar 11, 2022 11:58 am I don't see why anyone wouldn't use IBKR if using margin.
Because they have a nasty UI, nasty customer service, and a nasty margin algo that fire sales your positions first and asks questions later. It also has a history of knocking legs out from under your box spreads during such sale events. I get why people like them so much, but still..... gross.
vpiguy88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by vpiguy88 »

Hoping someone can help me make sure I'm doing this correct.

I opened my first short box spread a few months ago, which is expiring this Friday (March 18th). Opened at Fidelity in my margin accounts.

My understanding is that when it closes, it will withdraw the funds I owe and put me into a negative balance, but that is ok because it would effectively just be me withdrawing the cash on margin. I could then reopen a new short spread of the same amount, which would then put cash back into my account to cover the margin borrowing. The only amount I would need to add/pay myself is the cost of the borrowing to make sure there is no margin balance.

Could someone correct me if this is wrong? I got the attached email from Fidelity this morning, and everything I can find from Fidelity is around non-margin buying power, but Fidelity also has basically no info about short box spreads on their website.. Hoping I can get ahead of this by a few days. Thanks in advance for the help!
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sharukh
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by sharukh »

vpiguy88 wrote: Tue Mar 15, 2022 7:49 am Hoping someone can help me make sure I'm doing this correct.

I opened my first short box spread a few months ago, which is expiring this Friday (March 18th). Opened at Fidelity in my margin accounts.

My understanding is that when it closes, it will withdraw the funds I owe and put me into a negative balance, but that is ok because it would effectively just be me withdrawing the cash on margin. I could then reopen a new short spread of the same amount, which would then put cash back into my account to cover the margin borrowing. The only amount I would need to add/pay myself is the cost of the borrowing to make sure there is no margin balance.

Could someone correct me if this is wrong? I got the attached email from Fidelity this morning, and everything I can find from Fidelity is around non-margin buying power, but Fidelity also has basically no info about short box spreads on their website.. Hoping I can get ahead of this by a few days. Thanks in advance for the help!
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Yep, that sounds right.
jshaffer740
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by jshaffer740 »

I executed my first box spread at Fidelity today. I borrowed $20k with expiration on May 20 for an effective annualized interest rate (including commission) of 0.7%. I started out at a higher price, that would've taken me closer to 0.6%. But it hadn't filled after an hour, so I walked it down another time or two. The final trade ultimately took about an hour before it executed as well.

I'm sure there's a tradeoff between patience and getting the absolute best price. But I didn't feel like spending an entire day trying to squeeze out an extra 10 basis points annualized. It'd be nice if there was a way to automate the process of slowly walking the bid down over the full trading day.

One clarification: Fidelity is currently showing the $20k in pending activity. I assume when the trade settles tomorrow, that amount will sweep to my core cash account?
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corp_sharecropper
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by corp_sharecropper »

richardm wrote: Mon Mar 14, 2022 12:21 pm
thinkofanamefast wrote: Fri Mar 11, 2022 11:58 am I don't see why anyone wouldn't use IBKR if using margin.
Because they have a nasty UI, nasty customer service, and a nasty margin algo that fire sales your positions first and asks questions later. It also has a history of knocking legs out from under your box spreads during such sale events. I get why people like them so much, but still..... gross.
Wow, ok. I think their web app and especially their mobile app is far better than anyone else's. TWS is a bit complex but not much more than Thinkorswim or Active trader (Fidelity). Never once have needed to call IB, my only secure message requests were answered in less than 24hrs. I have never seen strange things with my box spreads and every automatic liquidation story I've ever read left a lot of questions unanswered as to the complainer's positions/trustworthiness/mental state/basic facts. They certainly don't consider the Vanguard crowd to be their clients, so if that's where you're coming from it's probably best to avoid IB (and box spreads, margin, and derivatives, for that matter).
jshaffer740
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by jshaffer740 »

Has anyone used box spreads in an IRA? I understand that margin trading is unavailable in retirement accounts (other than “limited” margin trading so you can trade without waiting for settlement). But options trading is available, including spreads.

To be more specific: Could you use a box spread to achieve some leverage in an IRA? Or does the lack of margin trading make that impossible? I’m having trouble working through how exactly it would work in an IRA.
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vpiguy88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by vpiguy88 »

My understanding is it's not possible to borrow from box spreads in IRAs, because you're shorting the box and you need margin to short.

For margin in IRAs, it's generally better to use futures because you can roll them without dealing with capital gains. Not all brokerages offer futures trading though (IBKR does, Fidelity does not).

I use Fidelity for other reasons, so futures aren't an option for me. I use LETFs in my tax-advantaged accounts instead.
thinkofanamefast
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by thinkofanamefast »

richardm wrote: Mon Mar 14, 2022 12:21 pm
thinkofanamefast wrote: Fri Mar 11, 2022 11:58 am I don't see why anyone wouldn't use IBKR if using margin.
Because they have a nasty UI, nasty customer service, and a nasty margin algo that fire sales your positions first and asks questions later. It also has a history of knocking legs out from under your box spreads during such sale events. I get why people like them so much, but still..... gross.
Thanks. Yeah, the more I read, the more I'm getting that. And I may just use Box spreads for financing since IBKR's margins will rise with Fed overnight rate, so maybe it's back to TDA for me.
jshaffer740
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by jshaffer740 »

thinkofanamefast wrote: Fri Mar 18, 2022 1:57 pm
richardm wrote: Mon Mar 14, 2022 12:21 pm
thinkofanamefast wrote: Fri Mar 11, 2022 11:58 am I don't see why anyone wouldn't use IBKR if using margin.
Because they have a nasty UI, nasty customer service, and a nasty margin algo that fire sales your positions first and asks questions later. It also has a history of knocking legs out from under your box spreads during such sale events. I get why people like them so much, but still..... gross.
Thanks. Yeah, the more I read, the more I'm getting that. And I may just use Box spreads for financing since IBKR's margins will rise with Fed overnight rate, so maybe it's back to TDA for me.
I had been dabbling with IBKR for their good margin rates. But I just executed my first box spread with Fidelity and it was a piece of cake. For long-term investors using straightforward ETFs, it really eliminates much or all of IBKR’s advantage. And it’s nice knowing I won’t have to fear the IBKR algorithm autoliquidating my positions.
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Bosro
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Bosro »

vpiguy88 wrote: Tue Mar 15, 2022 7:49 am Hoping someone can help me make sure I'm doing this correct.

I opened my first short box spread a few months ago, which is expiring this Friday (March 18th). Opened at Fidelity in my margin accounts.

My understanding is that when it closes, it will withdraw the funds I owe and put me into a negative balance, but that is ok because it would effectively just be me withdrawing the cash on margin. I could then reopen a new short spread of the same amount, which would then put cash back into my account to cover the margin borrowing. The only amount I would need to add/pay myself is the cost of the borrowing to make sure there is no margin balance.

Could someone correct me if this is wrong? I got the attached email from Fidelity this morning, and everything I can find from Fidelity is around non-margin buying power, but Fidelity also has basically no info about short box spreads on their website.. Hoping I can get ahead of this by a few days. Thanks in advance for the help!
What was your outcome with this transaction? Did it play out as you expected? Go into margin debt with Fidelity for the amount of your box spread until you opened a new box spread short to replace your expired box spread/margin debt?
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indexfundfan
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by indexfundfan »

My first boxtrade options at Fidelity expired yesterday on a Friday. According to the transaction record, the money will be squared away on Monday.

So if you had taken a loan using boxtrades, the loan payment is due one day after the options expiry date. I had thought the money would be needed on the expiry date. Other than that, everything is working as expected.
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jshaffer740
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by jshaffer740 »

indexfundfan wrote: Sat Mar 19, 2022 6:06 am My first boxtrade options at Fidelity expired yesterday on a Friday. According to the transaction record, the money will be squared away on Monday.

So if you had taken a loan using boxtrades, the loan payment is due one day after the options expiry date. I had thought the money would be needed on the expiry date. Other than that, everything is working as expected.
So do you plan to do a new box trade on Monday?
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by indexfundfan »

jshaffer740 wrote: Sat Mar 19, 2022 7:38 am
indexfundfan wrote: Sat Mar 19, 2022 6:06 am My first boxtrade options at Fidelity expired yesterday on a Friday. According to the transaction record, the money will be squared away on Monday.

So if you had taken a loan using boxtrades, the loan payment is due one day after the options expiry date. I had thought the money would be needed on the expiry date. Other than that, everything is working as expected.
So do you plan to do a new box trade on Monday?
Not at the moment. I had actually already moved the money to Fidelity to pay off the loan on Friday.
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spdydre
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by spdydre »

So I did a small box trade Dec 24 on Etrade for 10,500 on one of my reg T accounts. The "cost" of the spread was around $700 and dropped my available cash and margin available. Also have a option requirement equal to the box $10,500). So If i understand I wont be able to withdraw because I dont have a PM account but i can use this cash in place of the margin I have available but it is just locked in the account? So I can only use cash that is equal to my current margin balance correct? Is it possible to utilize this cash(margin) for secured puts or only stock purchases? For instance if I deposit 3k in cash that raises my margin buying power can I then use that cash for secured puts since I have the 10k cash on deposit? Thanks just trying to wrap my head around this. If I had a PM account then this would allow me to make a withdrawal and have lower option requirements correct?


Cash on Deposit
$10,804.38
Cash Available to Withdraw
$0.00
Option Requirement
$10,500.00
Margin Buying Power
$1,014.60
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

jshaffer740 wrote: Sat Mar 19, 2022 7:38 am
indexfundfan wrote: Sat Mar 19, 2022 6:06 am My first boxtrade options at Fidelity expired yesterday on a Friday. According to the transaction record, the money will be squared away on Monday.

So if you had taken a loan using boxtrades, the loan payment is due one day after the options expiry date. I had thought the money would be needed on the expiry date. Other than that, everything is working as expected.
So do you plan to do a new box trade on Monday?
If he wanted to renew ("roll") the box without a gap, he would have to do it on Friday. Both the settlement for expiring and for new boxes are T+1 after expiration or trade date.
vpiguy88
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by vpiguy88 »

Bosro wrote: Fri Mar 18, 2022 4:26 pm
vpiguy88 wrote: Tue Mar 15, 2022 7:49 am Hoping someone can help me make sure I'm doing this correct.

I opened my first short box spread a few months ago, which is expiring this Friday (March 18th). Opened at Fidelity in my margin accounts.

My understanding is that when it closes, it will withdraw the funds I owe and put me into a negative balance, but that is ok because it would effectively just be me withdrawing the cash on margin. I could then reopen a new short spread of the same amount, which would then put cash back into my account to cover the margin borrowing. The only amount I would need to add/pay myself is the cost of the borrowing to make sure there is no margin balance.

Could someone correct me if this is wrong? I got the attached email from Fidelity this morning, and everything I can find from Fidelity is around non-margin buying power, but Fidelity also has basically no info about short box spreads on their website.. Hoping I can get ahead of this by a few days. Thanks in advance for the help!
What was your outcome with this transaction? Did it play out as you expected? Go into margin debt with Fidelity for the amount of your box spread until you opened a new box spread short to replace your expired box spread/margin debt?
It acted as I suspected, no issues. I placed another box and I'm good to go until the next one expires again.
yobery
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by yobery »

I feel really stupid, but I'm trying to enter a test order using the numbers from boxtrades.com, and getting this error at Fido "The condor strategy requires that the strike price increments upward with each leg. Please review your selection."

Goal: borrow $200k, for repayment June 2023, with rate as close to 1.5% as possible

https://www.boxtrades.com/SPX/16JUN23
Calculate Short
Days to expiry 449 Spread 1000 Quantity 02 Commission 0 Rate 1.5 Cost of trade -981.89
Borrow 196,378 today, repay 200,000 on June 16th, 2023
Example Trade:
Sell 2 SPX 16JUN23 4600 CALL
Buy 2 SPX 16JUN23 4600 PUT
Buy 2 SPX 16JUN23 5600 CALL
Sell 2 SPX 16JUN23 5600 PUT

So I entered those details exactly, with the only difference being the net amount (which I also do not know how to choose, btw), and got the error above. Is there a more foolproof way to set these values? Thank you, and sorry for my lack of knowledge
jshaffer740
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by jshaffer740 »

yobery wrote: Wed Mar 23, 2022 2:37 pm I feel really stupid, but I'm trying to enter a test order using the numbers from boxtrades.com, and getting this error at Fido "The condor strategy requires that the strike price increments upward with each leg. Please review your selection."

Goal: borrow $200k, for repayment June 2023, with rate as close to 1.5% as possible

https://www.boxtrades.com/SPX/16JUN23
Calculate Short
Days to expiry 449 Spread 1000 Quantity 02 Commission 0 Rate 1.5 Cost of trade -981.89
Borrow 196,378 today, repay 200,000 on June 16th, 2023
Example Trade:
Sell 2 SPX 16JUN23 4600 CALL
Buy 2 SPX 16JUN23 4600 PUT
Buy 2 SPX 16JUN23 5600 CALL
Sell 2 SPX 16JUN23 5600 PUT

So I entered those details exactly, with the only difference being the net amount (which I also do not know how to choose, btw), and got the error above. Is there a more foolproof way to set these values? Thank you, and sorry for my lack of knowledge
One thing that jumps out is that you should set your lower leg below the current S&P 500 value (which closed at 4456 today). So you probably would set your lower leg at 4000 and your higher leg to be 5000.

The net amount is the credit you receive on the day you make the trade. Since you are borrowing, it will be some number less than the spread, which is what you will owe on expiration. The difference between the credit that you receive on day 1 and the amount you owe on expiration is the cost of borrowing and thus determines your effective interest rate.

You determine this amount by setting a limit price for what you’ll sell the box for. You could start with a price of $1,000, since that’s your spread. But that would equal a 0% rate, so it won’t fill. You can walk it down from there until it fills.

For an effective rate of 1.5%, you’d sell the box for (as boxtrades.com suggests) $981.89. The credit is always 100 * the price you sell for, and you’re selling two boxes, so you’d net $196,378. At expiration, you’ll owe $200,000. That means the box spread costs $3,622. If you do the math, that works out to an annualized rate of 1.5%.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by indexfundfan »

yobery wrote: Wed Mar 23, 2022 2:37 pm I feel really stupid, but I'm trying to enter a test order using the numbers from boxtrades.com, and getting this error at Fido "The condor strategy requires that the strike price increments upward with each leg. Please review your selection."

Goal: borrow $200k, for repayment June 2023, with rate as close to 1.5% as possible

https://www.boxtrades.com/SPX/16JUN23
Calculate Short
Days to expiry 449 Spread 1000 Quantity 02 Commission 0 Rate 1.5 Cost of trade -981.89
Borrow 196,378 today, repay 200,000 on June 16th, 2023
Example Trade:
Sell 2 SPX 16JUN23 4600 CALL
Buy 2 SPX 16JUN23 4600 PUT
Buy 2 SPX 16JUN23 5600 CALL
Sell 2 SPX 16JUN23 5600 PUT

So I entered those details exactly, with the only difference being the net amount (which I also do not know how to choose, btw), and got the error above. Is there a more foolproof way to set these values? Thank you, and sorry for my lack of knowledge
Your example trade for a loan looks correct. At Fidelity, use the "Add Leg" option three times such that you have four legs showing, then enter your trade. Do NOT use the "More strategies" drop-down to select a specific strategy.
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yobery
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by yobery »

indexfundfan wrote: Wed Mar 23, 2022 3:42 pm
yobery wrote: Wed Mar 23, 2022 2:37 pm I feel really stupid, but I'm trying to enter a test order using the numbers from boxtrades.com, and getting this error at Fido "The condor strategy requires that the strike price increments upward with each leg. Please review your selection."

Goal: borrow $200k, for repayment June 2023, with rate as close to 1.5% as possible

https://www.boxtrades.com/SPX/16JUN23
Calculate Short
Days to expiry 449 Spread 1000 Quantity 02 Commission 0 Rate 1.5 Cost of trade -981.89
Borrow 196,378 today, repay 200,000 on June 16th, 2023
Example Trade:
Sell 2 SPX 16JUN23 4600 CALL
Buy 2 SPX 16JUN23 4600 PUT
Buy 2 SPX 16JUN23 5600 CALL
Sell 2 SPX 16JUN23 5600 PUT

So I entered those details exactly, with the only difference being the net amount (which I also do not know how to choose, btw), and got the error above. Is there a more foolproof way to set these values? Thank you, and sorry for my lack of knowledge
Your example trade for a loan looks correct. At Fidelity, use the "Add Leg" option three times such that you have four legs showing, then enter your trade. Do NOT use the "More strategies" drop-down to select a specific strategy.
Thank you that is a good tip. I was using "more strategies, iron condor" per this post string earlier in the thread viewtopic.php?f=10&t=344667&p=6472427&h ... y#p6472427

Someone above suggested using 4000/5000 instead of 4600/5600. Do those matter?

I just want to lock in as good a rate as I can until June 2023 so that I'm not subject to the whims of the Fed. I have a good margin rate right now, but it's not guaranteed for any term. I don't really understand which of the numbers being entered are actually important here, as long as the interest rate comes out the same (in fidelity parlance, "max loss" / "net credit" / $days.to.exp * 365)... this seems like it should be easier. I'm usually pretty savvy but something about this just isn't clicking for me like it should. I let it autofill price at the ask but ... ugh. That seems like the only value that changes anything in my preview order
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by rama13 »

yobery wrote: Wed Mar 23, 2022 4:05 pm Someone above suggested using 4000/5000 instead of 4600/5600. Do those matter?
No.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by jshaffer740 »

rama13 wrote: Wed Mar 23, 2022 9:37 pm
yobery wrote: Wed Mar 23, 2022 4:05 pm Someone above suggested using 4000/5000 instead of 4600/5600. Do those matter?
No.
Say more.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by investorbust »

Does anyone have experience getting a mortgage while having box spreads on their portfolio?

I’m wondering if: a) it’ll raise a lot of questions and make things difficult and b) whether I can use box spreads for the down payment without an issues.

Thanks in advance.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by indexfundfan »

yobery wrote: Wed Mar 23, 2022 4:05 pm Someone above suggested using 4000/5000 instead of 4600/5600. Do those matter?
Theoretically, they both will give you the same spread (loan).

The difference comes in the liquidity of the options. You can view the ask and bid prices as well as the open interest in each of the four individual options online (e.g. from Yahoo finance). Try to pick those options that have the highest open interest and smallest bid/ask spread. This will give you a better chance of execution.

The "round" values 4000/5000 or 4600/5600 tend to have more open interest compared to say 4625/5625 etc.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by indexfundfan »

investorbust wrote: Thu Mar 24, 2022 2:14 am Does anyone have experience getting a mortgage while having box spreads on their portfolio?

I’m wondering if: a) it’ll raise a lot of questions and make things difficult and b) whether I can use box spreads for the down payment without an issues.

Thanks in advance.
The lender generally is not going to know you have box spreads in your portfolio. In the application, you may be required to show them the assets you have, but in my experience, it suffices to just provide them with the first page of a brokerage statement showing the total asset value. If the total asset value is sufficient to make the down payment, I don't think the lender is going to question whether you are liquidating the assets, taking a margin loan or taking a box spread loan to come up with the down payment.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by yobery »

indexfundfan wrote: Thu Mar 24, 2022 6:36 am
yobery wrote: Wed Mar 23, 2022 4:05 pm Someone above suggested using 4000/5000 instead of 4600/5600. Do those matter?
Theoretically, they both will give you the same spread (loan).

The difference comes in the liquidity of the options. You can view the ask and bid prices as well as the open interest in each of the four individual options online (e.g. from Yahoo finance). Try to pick those options that have the highest open interest and smallest bid/ask spread. This will give you a better chance of execution.

The "round" values 4000/5000 or 4600/5600 tend to have more open interest compared to say 4625/5625 etc.
So the only thing that really matters (other than matching call/put values on the buy/sell) is the very last field? (net amount), which I think is basically "price", and at the end is what changing determines your interest rate?

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

Post by indexfundfan »

Yes, the "Net Amount" box is your bottom line. Check out the recent trades from Boxtrade.com to have an idea what to enter in the "Net Amount" box. And of course verify that the order type is a "Net Credit" when you are taking a loan. If the trade does not execute for a long time, you may have to lower the value in "Net Amount".
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yobery
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by yobery »

indexfundfan wrote: Thu Mar 24, 2022 11:34 am Yes, the "Net Amount" box is your bottom line. Check out the recent trades from Boxtrade.com to have an idea what to enter in the "Net Amount" box. And of course verify that the order type is a "Net Credit" when you are taking a loan. If the trade does not execute for a long time, you may have to lower the value in "Net Amount".
Thanks again. I found the walkthrough here extremely helpful in case anyone else is also a newbie https://thefinancebuff.com/short-box-sp ... elity.html

It matched the wisdom on this thread exactly, but with a bit of different wording and things that were helpful for this novice

Placed an order about 30m ago, no fills yet :idea: . Do these trade during NYSE hours, or different hours?
jshaffer740
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by jshaffer740 »

yobery wrote: Thu Mar 24, 2022 2:51 pm
indexfundfan wrote: Thu Mar 24, 2022 11:34 am Yes, the "Net Amount" box is your bottom line. Check out the recent trades from Boxtrade.com to have an idea what to enter in the "Net Amount" box. And of course verify that the order type is a "Net Credit" when you are taking a loan. If the trade does not execute for a long time, you may have to lower the value in "Net Amount".
Thanks again. I found the walkthrough here extremely helpful in case anyone else is also a newbie https://thefinancebuff.com/short-box-sp ... elity.html

It matched the wisdom on this thread exactly, but with a bit of different wording and things that were helpful for this novice

Placed an order about 30m ago, no fills yet :idea: . Do these trade during NYSE hours, or different hours?
They’ll trade after NYSE hours, but you’ll get more volume and activity during regular trading hours, so don’t be surprised if it doesn’t fill today. Also, during regular hours, if it doesn’t fill within 45 minutes or so, that probably means you need to slightly lower your asking price.
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adamhg
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

indexfundfan wrote: Thu Mar 24, 2022 6:36 am The "round" values 4000/5000 or 4600/5600 tend to have more open interest compared to say 4625/5625 etc.
boxtrades.com used to show the spread with the greatest OI (calls + puts) within each tenor, which ended up with some less than ideal strikes for less popular expirations (i.e. 4600/5600). I just updated the site, so that starting tomorrow, it'll sums up all OI across all unexpired options which leans more towards whole numbers and should also hold up better as time moves forward.
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indexfundfan
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by indexfundfan »

adamhg wrote: Thu Mar 24, 2022 6:03 pm
indexfundfan wrote: Thu Mar 24, 2022 6:36 am The "round" values 4000/5000 or 4600/5600 tend to have more open interest compared to say 4625/5625 etc.
boxtrades.com used to show the spread with the greatest OI (calls + puts) within each tenor, which ended up with some less than ideal strikes for less popular expirations (i.e. 4600/5600). I just updated the site, so that starting tomorrow, it'll sums up all OI across all unexpired options which leans more towards whole numbers and should also hold up better as time moves forward.
Cool! I wasn't aware of that. This will make it even more useful.
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comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

adamhg wrote: Thu Mar 24, 2022 6:03 pm
indexfundfan wrote: Thu Mar 24, 2022 6:36 am The "round" values 4000/5000 or 4600/5600 tend to have more open interest compared to say 4625/5625 etc.
boxtrades.com used to show the spread with the greatest OI (calls + puts) within each tenor, which ended up with some less than ideal strikes for less popular expirations (i.e. 4600/5600). I just updated the site, so that starting tomorrow, it'll sums up all OI across all unexpired options which leans more towards whole numbers and should also hold up better as time moves forward.
In my experience though, strike prices divisible by 1000 did not get better implied box interest rates. I got almost equal rates for stike prices divisible by 1000 and for strike prices divisible by 100. I suspect that boxes are traded purely on implied rates.
If odd strike prices were to get suboptimal rates, we should see more dispersion in rates of trades with odd strike prices on boxtrades.com, compared to trades with round strike prices.

adamhg, what do you mean by "used to show the spread with the greatest OI (calls + puts) within each tenor"? Are you saying you didn't scan and show all strike prices, i.e. you filtered the results and didn't show all box trades? And can you also explain what you mean by "sum up all OI"? I don't see any OI indicated on your site.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

comeinvest wrote: Thu Mar 24, 2022 7:16 pm In my experience though, strike prices divisible by 1000 did not get better implied box interest rates. I got almost equal rates for stike prices divisible by 1000 and for strike prices divisible by 100. I suspect that boxes are traded purely on implied rates.
If odd strike prices were to get suboptimal rates, we should see more dispersion in rates of trades with odd strike prices on boxtrades.com, compared to trades with round strike prices.

adamhg, what do you mean by "used to show the spread with the greatest OI (calls + puts) within each tenor"? Are you saying you didn't scan and show all strike prices, i.e. you filtered the results and didn't show all box trades? And can you also explain what you mean by "sum up all OI"? I don't see any OI indicated on your site.
Personally and anecdotally, I don't think the strikes matter to the fill or rate. But I do think for retail, using the most liquid strikes helps in the mark to market and helps avoid some volatility simply due to bad marks.

The OI isn't shown on the site, but I do use it to determine the strikes for each example trade. As an example (not real numbers), if the following options had the following OI:

Code: Select all

+----------------------------+
|Option        |Put + Call OI|
+----------------------------+
|DEC '23 4000  |         1000|
|DEC '23 4600  |          100|
|DEC '23 5000  |         1000|
|DEC '23 5600  |          100|
|JUN '23 4000  |          500|
|JUN '23 4600  |          600|
|JUN '23 5000  |          500|
|JUN '23 5600  |          600|
+----------------------------+
As of today, for Jun '23 the site would have shown 4600 - 5600 in the $1000 spread example because 600 + 600 > 500 + 500 within that tenor

As of tomorrow, for Jun '23 the site will show 4000 - 5000 for the same $1000 spread example because I'm now adding all OI up across tenors and 1000 + 1000 + 500 + 500 > 100 + 100 + 600 + 600
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

adamhg wrote: Thu Mar 24, 2022 8:23 pm As of today, for Jun '23 the site would have shown 4600 - 5600 in the $1000 spread example because 600 + 600 > 500 + 500 within that tenor

As of tomorrow, for Jun '23 the site will show 4000 - 5000 for the same $1000 spread example because I'm now adding all OI up across tenors and 1000 + 1000 + 500 + 500 > 100 + 100 + 600 + 600
Got it, thanks. I never looked at your examples on the bottom, because all calcs and rates are interchangeable for the same box size.
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

adamhg wrote: Thu Mar 24, 2022 8:23 pm Personally and anecdotally, I don't think the strikes matter to the fill or rate. But I do think for retail, using the most liquid strikes helps in the mark to market and helps avoid some volatility simply due to bad marks.
Understood. I personally have also not seen any evidence that the mark price is controlled by the bids and asks of the legs for the particular strike price. I often held boxes where the legs had no bid or ask quotes at all. I believe I read elsewhere and I also received a response from IB on my inquiry, that IB uses proprietary interpolation techniques to arrive at mark prices. I would also think that the complex position is marked to market in its entirety. (I have no particular evidence for the latter.) I know there are anecdotal stories on the internet about bad mark prices, but I think the evidence is not conclusive.
adamhg
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by adamhg »

comeinvest wrote: Thu Mar 24, 2022 10:21 pm Understood. I personally have also not seen any evidence that the mark price is controlled by the bids and asks of the legs for the particular strike price. I often held boxes where the legs had no bid or ask quotes at all. I believe I read elsewhere and I also received a response from IB on my inquiry, that IB uses proprietary interpolation techniques to arrive at mark prices. I would also think that the complex position is marked to market in its entirety. (I have no particular evidence for the latter.) I know there are anecdotal stories on the internet about bad mark prices, but I think the evidence is not conclusive.
TDA tracks spreads as individual legs and the mark is simply the midpoint of each leg summed together. The swings get pretty silly with less liquid options so I always try to aim for the most liquid legs since all else seems equal.

I could also see an argument be made for the extremes (near zero or near the max strike) though to pay less in commissions.
Chuck
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Chuck »

adamhg wrote: Fri Mar 25, 2022 9:22 am I could also see an argument be made for the extremes (near zero or near the max strike) though to pay less in commissions.
I use extreme high strikes and leave out the nearly worthless calls. It's just fewer transactions and fewer holdings. Also, if the S&P goes up to 8000 before expiration, I don't have to pay back the money. :D :D
yobery
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by yobery »

Chuck wrote: Fri Mar 25, 2022 10:28 am
adamhg wrote: Fri Mar 25, 2022 9:22 am I could also see an argument be made for the extremes (near zero or near the max strike) though to pay less in commissions.
I use extreme high strikes and leave out the nearly worthless calls. It's just fewer transactions and fewer holdings. Also, if the S&P goes up to 8000 before expiration, I don't have to pay back the money. :D :D
Explain a bit more about this please :happy
Chuck
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Chuck »

yobery wrote: Fri Mar 25, 2022 1:14 pm Explain a bit more about this please :happy
Say you make a box today for Jul22:
Buy 5700 put and 5800 call, sell 5800 put and 5700 call to net ca. $10,000.

The calls have a bid of 0.70 and ask of 0.65, while the puts are 1264 and 1181. That's 0.06% of the cost of the trade. So who cares? You are just being paid to limit an almost impossible upside. So, just don't trade the calls.

What's the upside? If the index goes up to 5800, the puts expire worthless and you keep the money. This is not likely to happen, but for a few bucks it's a fun idea.
yobery
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by yobery »

Chuck wrote: Fri Mar 25, 2022 1:32 pm
yobery wrote: Fri Mar 25, 2022 1:14 pm Explain a bit more about this please :happy
Say you make a box today for Jul22:
Buy 5700 put and 5800 call, sell 5800 put and 5700 call to net ca. $10,000.

The calls have a bid of 0.70 and ask of 0.65, while the puts are 1264 and 1181. That's 0.06% of the cost of the trade. So who cares? You are just being paid to limit an almost impossible upside. So, just don't trade the calls.

What's the upside? If the index goes up to 5800, the puts expire worthless and you keep the money. This is not likely to happen, but for a few bucks it's a fun idea.
There must be some downside or this is what everyone would do? :oops:
Chuck
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Chuck »

yobery wrote: Fri Mar 25, 2022 1:44 pm There must be some downside or this is what everyone would do? :oops:
You lose a few dollars on the trade, compared with a full box spread.
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

adamhg wrote: Fri Mar 25, 2022 9:22 am
comeinvest wrote: Thu Mar 24, 2022 10:21 pm Understood. I personally have also not seen any evidence that the mark price is controlled by the bids and asks of the legs for the particular strike price. I often held boxes where the legs had no bid or ask quotes at all. I believe I read elsewhere and I also received a response from IB on my inquiry, that IB uses proprietary interpolation techniques to arrive at mark prices. I would also think that the complex position is marked to market in its entirety. (I have no particular evidence for the latter.) I know there are anecdotal stories on the internet about bad mark prices, but I think the evidence is not conclusive.
TDA tracks spreads as individual legs and the mark is simply the midpoint of each leg summed together. The swings get pretty silly with less liquid options so I always try to aim for the most liquid legs since all else seems equal.

I could also see an argument be made for the extremes (near zero or near the max strike) though to pay less in commissions.
That's interesting. Maybe IB is more sophisticated / less risky then. Midpoint seems to be a pretty idiotic concept, because a customer order close to the dealer-midpoint would skew the mark price. I'm surprised, because TdA options trading is the original highly-rated Thinkorswim. How would TdA then mark an option spread with legs that have no bid/ask quotes?
comeinvest
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by comeinvest »

adamhg wrote: Fri Mar 25, 2022 9:22 am I could also see an argument be made for the extremes (near zero or near the max strike) though to pay less in commissions.
Curious why the large trades of 50M-100M use box widths of only 1000. They could save a good amount of commission with wider boxes. Savings maybe small in relation to the trade, but enough to pay the clerk executing the trade ;) Also, how exactly do you think these trades are done. Are they pre-arranged with specific counterparties, or filled by market makers with the usual spread?
Last edited by comeinvest on Sat Mar 26, 2022 6:36 pm, edited 1 time in total.
Chuck
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by Chuck »

The kind of trader trading $50M is probably not paying commissions.
yobery
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by yobery »

My order hasn't filled yet, I walked the price down a touch so I have a question about boxtrades - am I supposed to be using the "black line" or the "purple circle" as my target interest rate? It seems like the box calculator gets prepopulated with the black line.

Is there a better place to see a list of filled boxes/prices/rates? I feel like boxtrades.com used to have this history list beyond the graph, but do not see it there now
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by sharkly »

The "black line" on boxtrades is labeled as an exponential moving average (EMA). In a rising interest rate environment, the EMA will always be lower than the most recent / "purple circle" rate. If rates continue to rise, you may need to adjust your price to a higher rate than the most recent trade.
yobery
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by yobery »

sharkly wrote: Mon Mar 28, 2022 1:14 pm The "black line" on boxtrades is labeled as an exponential moving average (EMA). In a rising interest rate environment, the EMA will always be lower than the most recent / "purple circle" rate. If rates continue to rise, you may need to adjust your price to a higher rate than the most recent trade.
The last 12/25 box 3/2, and the last 6/23 was 3/17? Hmm, or am I just reading it wrong
sharkly
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Re: Box Spreads as Loans - Interactive Brokers IBKR - 2021

Post by sharkly »

Yes, those appear to be the most recent trades identified by boxtrades. I don’t know of a better source to identify more trades if there are some that boxtrades is missing, but I definitely appreciate adamhg’s work to make this data easy to access.
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