Let's Talk SPX Box Spreads

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Kevin M
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Re: Let's Talk SPX Box Spreads

Post by Kevin M »

Today I tried to use the remaining $30K or so of the $100K I transferred to my Fidelity taxable account to buy box spreads. I tried this:

Exp: 7/15/2022
Strikes: 3,700 - 4,000
Price: 299.60
Gross yield: 1.572%
Net yield: 1.465%
Treasury yield: 1.09%
Gross yield spread: 0.48 bps
Net yield spread: 0.37 bps
Net TEY yield spread: 0.32 bps

Increasing the price by the minimum 0.05 to 299.65 results in 29 bps gross yield spread and only 0.11% TEY spread, which I don't think is worth it.

I set the order to day, since I don't want to be surprised by a big jump in Treasury yield tomorrow. I'll try something again tomorrow.

I want to note that Fidelity has a bit of a guardrail to keep us from entering the order incorrectly. The max profit and loss are displayed once you enter price; the max profit should be the strike spread, and the max loss should be 0. If you see anything but this, there's something wrong with the order.

This happened to me today, showing a max loss of more than 0, so I knew something was wrong. I reviewed the order about five times until I finally found the mistake, which was that I had used a mix of AM and PM settlements for the expirations.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
comeinvest
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Re: Let's Talk SPX Box Spreads

Post by comeinvest »

Kevin M wrote: Mon Jun 13, 2022 12:22 pm
comeinvest wrote: Sun Jun 12, 2022 10:51 pm "Friday closing yields for Treasuries maturing about 9/30/2022 were higher than that. The bill maturing 9/29 shows a yield of 1.360 for min qty 1,000, but a note maturing 9/30 has a higher yield at 1.421 for min qty 300 and 1.398 for min qty 25 or 1. -

Then I don't understand why your ASK quotes are higher than that on WSJ:
<snip>
Don't know what to tell you. They were actual quotes at Fidelity. The market was closed when I looked, so I assume they were from the close on Friday.
I assumed the same thing about the WSJ quotes. Same APY Friday and Sunday, and the site says the date (Friday) and ASK quotes. B.t.w. I'm not affiliated with WSJ and I don't claim they are right.
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Re: Let's Talk SPX Box Spreads

Post by adamhg »

Kevin M wrote: Thu Jun 09, 2022 2:44 pm ...
Another question. There are many expiration dates that aren't shown in boxtrades.com. What if I choose one that's close, but not shown? For example, March 31 2023 instead of Mar 17 2023? Obviously I have no visibility into trades, but I can do my own yield calculations. Any issues with doing something like this?
...
Somebody might have already answered you, but I'm only subscribed to SPX data and not SPXW. Each ticker costs about $20/mo which is about the max I'm looking to spend to maintain this site. I'd love to add SPXW and /ES and maybe even /CL (based on a recent WSJ article about crude boxes) if anybody knows a better data source.
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Re: Let's Talk SPX Box Spreads

Post by comeinvest »

adamhg wrote: Tue Jun 14, 2022 12:42 am
Kevin M wrote: Thu Jun 09, 2022 2:44 pm ...
Another question. There are many expiration dates that aren't shown in boxtrades.com. What if I choose one that's close, but not shown? For example, March 31 2023 instead of Mar 17 2023? Obviously I have no visibility into trades, but I can do my own yield calculations. Any issues with doing something like this?
...
Somebody might have already answered you, but I'm only subscribed to SPX data and not SPXW. Each ticker costs about $20/mo which is about the max I'm looking to spend to maintain this site. I'd love to add SPXW and /ES and maybe even /CL (based on a recent WSJ article about crude boxes) if anybody knows a better data source.
Can you please link the WSJ article about crude boxes?
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Kevin M
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Re: Let's Talk SPX Box Spreads

Post by Kevin M »

Kevin M wrote: Mon Jun 13, 2022 6:56 pm Today I tried to use the remaining $30K or so of the $100K I transferred to my Fidelity taxable account to buy box spreads. I tried this:

Exp: 7/15/2022
Strikes: 3,700 - 4,000
Price: 299.60
Gross yield: 1.572%
Net yield: 1.465%
Treasury yield: 1.09%
Gross yield spread: 0.48 bps
Net yield spread: 0.37 bps
Net TEY yield spread: 0.32 bps

<snip>
Entered this again today, and it was filled immediately. Here are the stats:

Exp: 7/15/2022
Strikes: 3,700 - 4,000
Price: 299.60
Gross yield: 1.624%%
Net yield: 1.514%%
Treasury yield: 1.135%
Gross yield spread: 0.49 bps
Net yield spread: 0.38 bps
Net TEY yield spread: 0.32 bps

Price is the same, and even though Treasury yield is higher, the yield spread is about the same because of the DTE being 1 day less.

This is the first order I've entered without looking at Boxtrades.com. I'm getting the hang of it.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
comeinvest
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Re: Let's Talk SPX Box Spreads

Post by comeinvest »

Kevin M wrote: Tue Jun 14, 2022 12:31 pm
Kevin M wrote: Mon Jun 13, 2022 6:56 pm Today I tried to use the remaining $30K or so of the $100K I transferred to my Fidelity taxable account to buy box spreads. I tried this:

Exp: 7/15/2022
Strikes: 3,700 - 4,000
Price: 299.60
Gross yield: 1.572%
Net yield: 1.465%
Treasury yield: 1.09%
Gross yield spread: 0.48 bps
Net yield spread: 0.37 bps
Net TEY yield spread: 0.32 bps

<snip>
Entered this again today, and it was filled immediately. Here are the stats:

Exp: 7/15/2022
Strikes: 3,700 - 4,000
Price: 299.60
Gross yield: 1.624%%
Net yield: 1.514%%
Treasury yield: 1.135%
Gross yield spread: 0.49 bps
Net yield spread: 0.38 bps
Net TEY yield spread: 0.32 bps

Price is the same, and even though Treasury yield is higher, the yield spread is about the same because of the DTE being 1 day less.

This is the first order I've entered without looking at Boxtrades.com. I'm getting the hang of it.

Kevin
Congrats. You got a good rate. If you got filled immediately at your limit, you may or may not have benefited from talking the limit up. A good way to get a feeling for the market dynamics is to place multiple orders of the exact same box with different limits, by splitting the total amount that you want to borrow or invest.

The spread to treasuries definitely seems to be a bit higher than last year. 0.35% - 0.45% was typical last year for borrowing, and slightly lower for lending. I'm curious if it depends on whether the stock market trend is up or down.
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Re: Let's Talk SPX Box Spreads

Post by adamhg »

comeinvest wrote: Tue Jun 14, 2022 4:03 am Can you please link the WSJ article about crude boxes?
I was mistaken, it was a bloomberg article: https://www.bloomberg.com/news/articles ... ra-finance
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Re: Let's Talk SPX Box Spreads

Post by comeinvest »

adamhg wrote: Wed Jun 15, 2022 8:04 am
comeinvest wrote: Tue Jun 14, 2022 4:03 am Can you please link the WSJ article about crude boxes?
I was mistaken, it was a bloomberg article: https://www.bloomberg.com/news/articles ... ra-finance
The article is not very specific. It looks like you can create a WTI box of up to $290,000 with strike prices 10 and 300, multiplier 1000. But you can only use the funds on the commodities side e.g. to fund the margin requirements of futures or futures options, not for equities. Alternatively, the trader could have borrowed using broker margin (from the securities account), which the article does not mention. Neither does the article mention if and/or why WTI boxes would require more margin than they used to before the Ukraine war and the volatility in crude prices, which would be unclear to me from a theoretical point of view, as boxes are market neutral with respect to the underlying market.

Looking at the WTI chart, WTI traded in a range of ca. 12 to 130 since 1983. It fell to ca. 20 as late as 2020, and is now at ca. 115.
The WTI futures options are European style option. To limit the risk of early assignment, you want to use strike prices that have a measurable amount of extrinsic value, probably like 20 to 150 strikes. Would still make for a nice $130k box. If an early assignment occurs, typically close to expiration, it is not the end of the world. You receive a futures contract into your account that moves the same way with the market as the assigned futures option i.e. you will typically not incur market risk. Not even the margin requirement changes very much. You can typically repair the original box i.e. repair your "loan" by exiting the assigned futures contract, and simultaneously replacing the assigned futures option with an identical one. You will typically incur 1 day worth of broker margin interest, because you get notified of assignments only after-hours, which means you can repair the box only the next day.

Another alternative to avoid assignment is to use strike prices with more extrinsic value i.e. closer to the current underlying price, which result in smaller boxes, and roll the entire box before expiration.

I did this with other commodities options and got lower interest rates than with SPX boxes. Why that so is from a theoretical point of view, is not clear to me. As there is no underlying market risk, and all futures and futures options are guaranteed by the central exchanges, financing cost should be the same, unless I'm missing something.
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Kevin M
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Re: Let's Talk SPX Box Spreads

Post by Kevin M »

Got an immediate fill just now on Sep 16 2022 box, strikes 3,500 - 3,800, gross price 298.45, gross yield 2.083%, gross spread over Treasury (1.553%, 9/15/2022, min qty 1) 0.53 bps. I think this is my best yield spread yet. Net taxable equivalent yield = 2.171% (Treasury TEY 1.763%). This is in taxable.

Unfortunately I did not try a higher price, since I thought a yield spread of 53 bps would not be filled.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
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Re: Let's Talk SPX Box Spreads

Post by Kevin M »

Bought Oct 21 2022 at 496.00 at strikes 3,500 - 4,000. Gross yield 2.336%, net 2.32%, TEY 2.462.

Treasury yield 1.804%, TEY 2.048%.

Treasury yield spread 53 bps gross, 52 bps net, and 41 bps net TEY.

I started at 495.50, and walked it up in 0.05 increments every few minutes until it filled.

This adds a $50K 4-month rung to my box ladder, which now is:

Image

Kevin
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Re: Let's Talk SPX Box Spreads

Post by yhylord »

I bought 2 Jun 15 2023 at 971 at 4000 - 5000 on 6/3/2022 close to market close. They were filled quickly.

Looking back, the market seems to always raise their expectation of future fed funds rate, so locking in a fixed rate by box spreads is a good deal (not to mention the 1.5% spread IBKR charges on margin loan <= 100K).
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Re: Let's Talk SPX Box Spreads

Post by Kevin M »

Immediate fill on 1 Dec 16 2022, strikes 3,800-4,000 ($20K expiration value) at 197.40, for a rate of 2.747%, which is 50 bps over Treasury yield of 2.25%. Net yield is 2.718%, and TEY is 2.884% for a TEY spread of 33 bps.

Now I've got $50K expiration value each at approximately 1, 2, 3, 4, 6, and 9 months. I think I'll take a break for a bit and see if we get higher Treasury yields soon. Then I'd like to add 5, 7 and 8-month rungs.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
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Re: Let's Talk SPX Box Spreads

Post by nalor511 »

Kevin M wrote: Thu Jun 23, 2022 1:34 pm Immediate fill on 1 Dec 16 2022, strikes 3,800-4,000 ($20K expiration value) at 197.40, for a rate of 2.747%, which is 50 bps over Treasury yield of 2.25%. Net yield is 2.718%, and TEY is 2.884% for a TEY spread of 33 bps.

Now I've got $50K expiration value each at approximately 1, 2, 3, 4, 6, and 9 months. I think I'll take a break for a bit and see if we get higher Treasury yields soon. Then I'd like to add 5, 7 and 8-month rungs.

Kevin
So, I'm mildly confused following this thread. Previous guidance I'd seen suggested that boxes would fill .35% - .45% over treasury yields of sa.me(or similar) maturity. Two questions. 1. what's the actual number over treasuries that you think these fill at, and is it different short vs long box? 2. what's the best place to pull that treasury yield? I'd been using WSJ.com (e.g. https://www.wsj.com/market-data/quotes/ ... MUBMUSD01Y)
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Re: Let's Talk SPX Box Spreads

Post by Kevin M »

nalor511 wrote: Thu Jun 23, 2022 1:59 pm
Kevin M wrote: Thu Jun 23, 2022 1:34 pm Immediate fill on 1 Dec 16 2022, strikes 3,800-4,000 ($20K expiration value) at 197.40, for a rate of 2.747%, which is 50 bps over Treasury yield of 2.25%. Net yield is 2.718%, and TEY is 2.884% for a TEY spread of 33 bps.

Now I've got $50K expiration value each at approximately 1, 2, 3, 4, 6, and 9 months. I think I'll take a break for a bit and see if we get higher Treasury yields soon. Then I'd like to add 5, 7 and 8-month rungs.

Kevin
So, I'm mildly confused following this thread. Previous guidance I'd seen suggested that boxes would fill .35% - .45% over treasury yields of sa.me(or similar) maturity. Two questions. 1. what's the actual number over treasuries that you think these fill at, and is it different short vs long box? 2. what's the best place to pull that treasury yield? I'd been using WSJ.com (e.g. https://www.wsj.com/market-data/quotes/ ... MUBMUSD01Y)
I think I've posted the results of each of my trades, including the yield spread over Treasury. I've been getting 40 to 50 basis points over, probably average closer to 40. I won't go below 40 gross (before commissions and tax adjustment in taxable).

I do only long boxes.

I use an actual ask quote from Fidelity for the quantity of interest. This is a competitive product that I actually could buy. I can't buy from WSJ, and I don't know where they get their quotes from. Regardless of what WSJ says, I'm happy to get 40-50 bps over what I could actually get from a Treasury of same maturity at Fidelity.

I find the Treasury with the closest maturity, so for the one I did today with Sep 16 2022 expiration, I used Treasury with Sep 15 2022 maturity. I use whichever on or very close to that date has the highest yield, then look at depth of book for the min quantity that works for me.

Of course the Treasury yields can change, so maybe by the time I've entered my order (it takes a couple of minutes to enter the 4 legs) the Treasury yield has changed a bit, but I don't check that.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
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Re: Let's Talk SPX Box Spreads

Post by indexfundfan »

I agree that 40 bps is the typical advantage you can get from long boxes over treasuries of comparable duration.

If you ignore the trading commission (~$2.70 at Fidelity), there is no interest rate difference rate between long or short boxes. And that makes it a great deal because generally a retail investor would not be able to lend or borrow at the same rate (the finance institution makes a profit off the difference between the two rates).
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Re: Let's Talk SPX Box Spreads

Post by comeinvest »

Kevin M wrote: Thu Jun 23, 2022 2:40 pm
nalor511 wrote: Thu Jun 23, 2022 1:59 pm
Kevin M wrote: Thu Jun 23, 2022 1:34 pm Immediate fill on 1 Dec 16 2022, strikes 3,800-4,000 ($20K expiration value) at 197.40, for a rate of 2.747%, which is 50 bps over Treasury yield of 2.25%. Net yield is 2.718%, and TEY is 2.884% for a TEY spread of 33 bps.

Now I've got $50K expiration value each at approximately 1, 2, 3, 4, 6, and 9 months. I think I'll take a break for a bit and see if we get higher Treasury yields soon. Then I'd like to add 5, 7 and 8-month rungs.

Kevin
So, I'm mildly confused following this thread. Previous guidance I'd seen suggested that boxes would fill .35% - .45% over treasury yields of sa.me(or similar) maturity. Two questions. 1. what's the actual number over treasuries that you think these fill at, and is it different short vs long box? 2. what's the best place to pull that treasury yield? I'd been using WSJ.com (e.g. https://www.wsj.com/market-data/quotes/ ... MUBMUSD01Y)
I think I've posted the results of each of my trades, including the yield spread over Treasury. I've been getting 40 to 50 basis points over, probably average closer to 40. I won't go below 40 gross (before commissions and tax adjustment in taxable).

I do only long boxes.

I use an actual ask quote from Fidelity for the quantity of interest. This is a competitive product that I actually could buy. I can't buy from WSJ, and I don't know where they get their quotes from. Regardless of what WSJ says, I'm happy to get 40-50 bps over what I could actually get from a Treasury of same maturity at Fidelity.

I find the Treasury with the closest maturity, so for the one I did today with Sep 16 2022 expiration, I used Treasury with Sep 15 2022 maturity. I use whichever on or very close to that date has the highest yield, then look at depth of book for the min quantity that works for me.

Of course the Treasury yields can change, so maybe by the time I've entered my order (it takes a couple of minutes to enter the 4 legs) the Treasury yield has changed a bit, but I don't check that.

Kevin
Coupon payments between now and maturity are reflected in in treasuries YTM quotes or calcs?
comeinvest
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Re: Let's Talk SPX Box Spreads

Post by comeinvest »

indexfundfan wrote: Thu Jun 23, 2022 2:52 pm I agree that 40 bps is the typical advantage you can get from long boxes over treasuries of comparable duration.

If you ignore the trading commission (~$2.70 at Fidelity), there is no interest rate difference rate between long or short boxes. And that makes it a great deal because generally a retail investor would not be able to lend or borrow at the same rate (the finance institution makes a profit off the difference between the two rates).
I believe there is an interest rate difference of ca. 0.1% to 0.2% between what you can get for long and short boxes, because of what market makers are willing to fill. (There has been some debate in this and other threads about what the market structure might be like, i.e. who the typical counterparties of box trades might be, and their constraints and strategies.)
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Re: Let's Talk SPX Box Spreads

Post by comeinvest »

yhylord wrote: Thu Jun 16, 2022 5:08 pm I bought 2 Jun 15 2023 at 971 at 4000 - 5000 on 6/3/2022 close to market close. They were filled quickly.

Looking back, the market seems to always raise their expectation of future fed funds rate, so locking in a fixed rate by box spreads is a good deal (not to mention the 1.5% spread IBKR charges on margin loan <= 100K).
It looks like the spreads above treasuries are slightly higher than they were last year. Are you sure that the spread to treasuries is the "correct" (meaningful) comparision, not for example LIBOR or SOFR or fed fund rates?
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Re: Let's Talk SPX Box Spreads

Post by unemployed_pysicist »

comeinvest wrote: Sun Jun 26, 2022 6:41 am Are you sure that the spread to treasuries is the "correct" (meaningful) comparision, not for example LIBOR or SOFR or fed fund rates?
I would guess that the spread to OIS (~fed fund rates) is the correct comparison.

And by OIS, I mean the OIS zero curve.
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comeinvest
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Re: Let's Talk SPX Box Spreads

Post by comeinvest »

unemployed_pysicist wrote: Sun Jun 26, 2022 2:44 pm
comeinvest wrote: Sun Jun 26, 2022 6:41 am Are you sure that the spread to treasuries is the "correct" (meaningful) comparison, not for example LIBOR or SOFR or fed fund rates?
I would guess that the spread to OIS (~fed fund rates) is the correct comparison.

And by OIS, I mean the OIS zero curve.
Why? Kevin has a point, because you as private investor can invest in a treasury as an alternative to the box, but not in fed funds. But then again we are also interested in having a consistent comparable metrics to be able to compare box fill rates at different times, free of other effects and artifacts. But different short-term rate measures slightly differ, and the difference is dynamic over time.
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Re: Let's Talk SPX Box Spreads

Post by Kevin M »

comeinvest wrote: Tue Jun 28, 2022 6:00 am
unemployed_pysicist wrote: Sun Jun 26, 2022 2:44 pm
comeinvest wrote: Sun Jun 26, 2022 6:41 am Are you sure that the spread to treasuries is the "correct" (meaningful) comparison, not for example LIBOR or SOFR or fed fund rates?
I would guess that the spread to OIS (~fed fund rates) is the correct comparison.

And by OIS, I mean the OIS zero curve.
Why? Kevin has a point, because you as private investor can invest in a treasury as an alternative to the box, but not in fed funds. But then again we are also interested in having a consistent comparable metrics to be able to compare box fill rates at different times, free of other effects and artifacts. But different short-term rate measures slightly differ, and the difference is dynamic over time.
Right. As I said before, what I care about is the yield premium over a comparable investment that I can actually buy. That's why I compare to a quote from Fidelity for the quantity I would be buying. If someone is comparing to Treasury CMT quotes, WSJ quotes, or larger quantities, they will likely get a different yield spread.

Kevin
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Re: Let's Talk SPX Box Spreads

Post by comeinvest »

adamhg wrote: Wed Jun 15, 2022 8:04 am
Hi adamhg, are the times of the trades on boxtrades.com Pacific Time? Also, would your system collect trades outside regular trading hours? Because I don't see any on boxtrades.com.

Regular hours of SPX options are 6.30 - 13.15 Pacific Time, total available hours are 17.15 - 6.15 and 6.30 - 14. I'm actually a little surprised reading the - 14 (Pacific Time), because at IB my SPX options orders usually get cancelled at 13.15, although I can enter orders and they become active and sometimes filled in the evening and throughout the night.
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Re: Let's Talk SPX Box Spreads

Post by fidream »

If we didn't have boxtrades.com, how would one go about figuring out what strike prices to use and what limit price to use? Just curious about the mechanics or if adam decides the heck with boxtrades :).
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Re: Let's Talk SPX Box Spreads

Post by Kevin M »

fidream wrote: Mon Jul 04, 2022 12:12 am If we didn't have boxtrades.com, how would one go about figuring out what strike prices to use and what limit price to use? Just curious about the mechanics or if adam decides the heck with boxtrades :).
I didn't look at boxtrades.com for my last few box purchases, except for maybe the expiration date. I have all the calculations I need set up in a spreadsheet.

I use strike prices below and above the current SPX price. If I want to invest $20K, I'll use strike prices about 100 below and 100 above the current price, but I really don't pay much attention to the exact strikes--just the spread (200 in this example).

For limit price I start at about 50-60 basis points above a Treasury of same maturity (or as close as possible) and same quantity as I'm investing in the box (e.g., for a $20K box with 200 strike price spread, I'll look for yield for quantity 20), and lower it in 0.05 increments until it is filled--usually waiting at least 10 minutes before each limit price decrease. I won't go below 40 basis points above the Treasury yield. My last couple were filled at about 50 bps above the Treasury yield.

Kevin
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Re: Let's Talk SPX Box Spreads

Post by fidream »

Kevin M wrote: Mon Jul 04, 2022 2:26 pm
fidream wrote: Mon Jul 04, 2022 12:12 am If we didn't have boxtrades.com, how would one go about figuring out what strike prices to use and what limit price to use? Just curious about the mechanics or if adam decides the heck with boxtrades :).
I didn't look at boxtrades.com for my last few box purchases, except for maybe the expiration date. I have all the calculations I need set up in a spreadsheet.

I use strike prices below and above the current SPX price. If I want to invest $20K, I'll use strike prices about 100 below and 100 above the current price, but I really don't pay much attention to the exact strikes--just the spread (200 in this example).

For limit price I start at about 50-60 basis points above a Treasury of same maturity (or as close as possible) and same quantity as I'm investing in the box (e.g., for a $20K box with 200 strike price spread, I'll look for yield for quantity 20), and lower it in 0.05 increments until it is filled--usually waiting at least 10 minutes before each limit price decrease. I won't go below 40 basis points above the Treasury yield. My last couple were filled at about 50 bps above the Treasury yield.

Kevin
Would you be willing the share the spreadsheet? If it's not too personal. :beer
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Re: Let's Talk SPX Box Spreads

Post by Kevin M »

fidream wrote: Mon Jul 04, 2022 2:32 pm Would you be willing the share the spreadsheet? If it's not too personal. :beer
The spreadsheet I actually use is too personal, as it has my trades and holdings in it. So, I made a copy for sharing, which only includes the sheets necessary to calculate the values to enter the trade. I've restricted editing permissions so no one messes it up, but you can make a copy and do whatever you want with it.

Here is a link to the shared spreadsheet: https://docs.google.com/spreadsheets/d/ ... sp=sharing

My convention is to format data entry cells with light blue background, so those are the only cells that should be modified. All other cells contain formulas. Also, some of the cells are used mostly for educational purposes, like seeing the impact of different frequency and day count convention on YIELD calculations, so you don't really need to include these.

The shared spreadsheet has numbers for one of my last box spread purchases.

Kevin
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Re: Let's Talk SPX Box Spreads

Post by adamhg »

comeinvest wrote: Thu Jun 30, 2022 7:05 pm
adamhg wrote: Wed Jun 15, 2022 8:04 am
Hi adamhg, are the times of the trades on boxtrades.com Pacific Time? Also, would your system collect trades outside regular trading hours? Because I don't see any on boxtrades.com.

Regular hours of SPX options are 6.30 - 13.15 Pacific Time, total available hours are 17.15 - 6.15 and 6.30 - 14. I'm actually a little surprised reading the - 14 (Pacific Time), because at IB my SPX options orders usually get cancelled at 13.15, although I can enter orders and they become active and sometimes filled in the evening and throughout the night.
My data provider's timestamps are Eastern and from the looks of it, between 9:30am and a few mins before 5:30pm ET. The data points on the website are displayed in your system's local time.
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Re: Let's Talk SPX Box Spreads

Post by comeinvest »

adamhg wrote: Wed Jul 06, 2022 3:10 pm
comeinvest wrote: Thu Jun 30, 2022 7:05 pm
adamhg wrote: Wed Jun 15, 2022 8:04 am
Hi adamhg, are the times of the trades on boxtrades.com Pacific Time? Also, would your system collect trades outside regular trading hours? Because I don't see any on boxtrades.com.

Regular hours of SPX options are 6.30 - 13.15 Pacific Time, total available hours are 17.15 - 6.15 and 6.30 - 14. I'm actually a little surprised reading the - 14 (Pacific Time), because at IB my SPX options orders usually get cancelled at 13.15, although I can enter orders and they become active and sometimes filled in the evening and throughout the night.
My data provider's timestamps are Eastern and from the looks of it, between 9:30am and a few mins before 5:30pm ET. The data points on the website are displayed in your system's local time.
Would your data provider collect any trades within trading hours, but outside "regular" trading hours? I'm curious if there are (almost) no trades, or if your system just doesn't collect them. I'm curious if I should restrict my trades to regular trading hours for better fills. I had some good fills in the past outside regular trading hours, but I'm not sure if I would get better fills on average within RTH.
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Kevin M
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Re: Let's Talk SPX Box Spreads

Post by Kevin M »

With my shortest expiration long SPX box about the expire on 7/15, I want to make sure I understand the mechanics at expiration. As I understand it, SPX box spreads are cash settled, so I don't have to do anything except let it expire, and the cash equal to the spread amount times 100 will be deposited into my settlement fund. Is this correct?

Thanks,

Kevin
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Re: Let's Talk SPX Box Spreads

Post by indexfundfan »

Kevin M wrote: Fri Jul 08, 2022 1:06 pm With my shortest expiration long SPX box about the expire on 7/15, I want to make sure I understand the mechanics at expiration. As I understand it, SPX box spreads are cash settled, so I don't have to do anything except let it expire, and the cash equal to the spread amount times 100 will be deposited into my settlement fund. Is this correct?

Thanks,

Kevin
Yes. It will go into the settlement fund the next business day.
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Re: Let's Talk SPX Box Spreads

Post by Kevin M »

indexfundfan wrote: Fri Jul 08, 2022 1:11 pm
Kevin M wrote: Fri Jul 08, 2022 1:06 pm With my shortest expiration long SPX box about the expire on 7/15, I want to make sure I understand the mechanics at expiration. As I understand it, SPX box spreads are cash settled, so I don't have to do anything except let it expire, and the cash equal to the spread amount times 100 will be deposited into my settlement fund. Is this correct?

Thanks,

Kevin
Yes. It will go into the settlement fund the next business day.
Thank you! I've been holding off on buying more until this one expires, just so I can make sure it works as expected.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Let's Talk SPX Box Spreads

Post by comeinvest »

I have a feeling that fills for box spreads below ca. $100,000 are worse or harder to come by than for larger amounts. I'm currently having trouble selling a $50k Aug 19 2022 (3000-3500) spread, even though my current limit is equivalent to 2.179% when there were big trades at 2.05% end of last week, and more big trades as low as 1.83% earlier last week and the week before, according to boxtrades.com. That's at least 0.35% difference between filled APYs when the short-term risk-free rates didn't change much if I'm not mistaken.
Anybody else feels the same?
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Re: Let's Talk SPX Box Spreads

Post by kxl19 »

comeinvest wrote: Mon Jul 11, 2022 2:33 pm I have a feeling that fills for box spreads below ca. $100,000 are worse or harder to come by than for larger amounts. I'm currently having trouble selling a $50k Aug 19 2022 (3000-3500) spread, even though my current limit is equivalent to 2.179% when there were big trades at 2.05% end of last week, and more big trades as low as 1.83% earlier last week and the week before, according to boxtrades.com. Anybody else feels the same?
I’m curious why you’re selling a 3000-3500 spread when SPX is at 3800? Shouldn’t the spread be around the SPX price?
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Re: Let's Talk SPX Box Spreads

Post by comeinvest »

kxl19 wrote: Mon Jul 11, 2022 2:36 pm
comeinvest wrote: Mon Jul 11, 2022 2:33 pm I have a feeling that fills for box spreads below ca. $100,000 are worse or harder to come by than for larger amounts. I'm currently having trouble selling a $50k Aug 19 2022 (3000-3500) spread, even though my current limit is equivalent to 2.179% when there were big trades at 2.05% end of last week, and more big trades as low as 1.83% earlier last week and the week before, according to boxtrades.com. Anybody else feels the same?
I’m curious why you’re selling a 3000-3500 spread when SPX is at 3800? Shouldn’t the spread be around the SPX price?
No. Look at boxtrades what spreads the big boys are using. The strike prices probably don't matter a single bit. There has been some discussion whether the more popular strike prices might get better fills, but no evidence. "Popular" would be divisible by 1000. I personally "normalized" my strike prices so it's easier to keep track of, add, and delete spreads.
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Re: Let's Talk SPX Box Spreads

Post by kxl19 »

comeinvest wrote: Mon Jul 11, 2022 6:06 pm
kxl19 wrote: Mon Jul 11, 2022 2:36 pm
comeinvest wrote: Mon Jul 11, 2022 2:33 pm I have a feeling that fills for box spreads below ca. $100,000 are worse or harder to come by than for larger amounts. I'm currently having trouble selling a $50k Aug 19 2022 (3000-3500) spread, even though my current limit is equivalent to 2.179% when there were big trades at 2.05% end of last week, and more big trades as low as 1.83% earlier last week and the week before, according to boxtrades.com. Anybody else feels the same?
I’m curious why you’re selling a 3000-3500 spread when SPX is at 3800? Shouldn’t the spread be around the SPX price?
No. Look at boxtrades what spreads the big boys are using. The strike prices probably don't matter a single bit. There has been some discussion whether the more popular strike prices might get better fills, but no evidence. "Popular" would be divisible by 1000. I personally "normalized" my strike prices so it's easier to keep track of, add, and delete spreads.
I didn’t realize the spread doesn’t need to be around the SPX price … for example I was wondering why the box trades site was recommending a 4000-5000 spread for the Dec 2022 date for a 100k box when SPX is currently 3800 ish.

Does this mean I should just find a spread that has more “liquidity” regardless of the actual SPX price?
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Re: Let's Talk SPX Box Spreads

Post by comeinvest »

kxl19 wrote: Mon Jul 11, 2022 8:16 pm I didn’t realize the spread doesn’t need to be around the SPX price … for example I was wondering why the box trades site was recommending a 4000-5000 spread for the Dec 2022 date for a 100k box when SPX is currently 3800 ish.

Does this mean I should just find a spread that has more “liquidity” regardless of the actual SPX price?
I would say if anything, then the liquidity in the complex order book, not that of the individual legs. But don't take my word for it, I'm not a professional options trader.
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Re: Let's Talk SPX Box Spreads

Post by unemployed_pysicist »

comeinvest wrote: Tue Jun 28, 2022 6:00 am
unemployed_pysicist wrote: Sun Jun 26, 2022 2:44 pm
comeinvest wrote: Sun Jun 26, 2022 6:41 am Are you sure that the spread to treasuries is the "correct" (meaningful) comparison, not for example LIBOR or SOFR or fed fund rates?
I would guess that the spread to OIS (~fed fund rates) is the correct comparison.

And by OIS, I mean the OIS zero curve.
Why? Kevin has a point, because you as private investor can invest in a treasury as an alternative to the box, but not in fed funds. But then again we are also interested in having a consistent comparable metrics to be able to compare box fill rates at different times, free of other effects and artifacts. But different short-term rate measures slightly differ, and the difference is dynamic over time.
I guess I misinterpreted the use of "correct" to mean the correct yield curve for discounting. Or, to measure the spread of the box to its closest relative with respect to term and credit risk. I assume this would be the OIS zero curve, but I am not completely sure. If it is just a matter of choosing among easily investible alternatives for the private investor, then I see no issue comparing the box and treasuries (though I would personally want a positive spread between the box and treasuries if I were going to go long the box.)

I am curious what is the spread between long box spreads and the OIS zero curve. Does anyone have any data for this?

The OIS zero curve used to lie above the treasury zero curve, but since around 2017-2018 or thereabouts it went below. There were a number of papers on this phenomenon. I wonder if the situation has reversed, and the OIS zero curve is above treasuries again now.
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Re: Let's Talk SPX Box Spreads

Post by Investing Lawyer »

I wanted to post because one of box spread had a bad print tonight -70k unrealized loss in one of a couple of boxes I have, but my "excess liquidity" measure on IB was not affected by the bad print. Unsurprisingly this happened on "uneven" strikes of 4750 for both the call and the put.

So it seems IB has programmed the bad print for boxes issue away. However, I'd worry that if you "legged" into the trade, the programming would not be as smart.
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Re: Let's Talk SPX Box Spreads

Post by Kevin M »

Investing Lawyer wrote: Thu Jul 14, 2022 9:12 pm I wanted to post because one of box spread had a bad print tonight -70k unrealized loss in one of a couple of boxes I have, but my "excess liquidity" measure on IB was not affected by the bad print. Unsurprisingly this happened on "uneven" strikes of 4750 for both the call and the put.

So it seems IB has programmed the bad print for boxes issue away. However, I'd worry that if you "legged" into the trade, the programming would not be as smart.
Can you explain this in simpler terms for those of us new to box spreads? After all, this thread is for those of us who aren't big options traders.

What is a "bad print"?

Why is a bad print more likely for uneven strikes?

What does "legged into the trade" mean? Does it mean buy the 4 legs separately instead of all at once? Why would anyone do that, since we want all four legs of the box to be connected (unable to be assigned or exercised separately).

I have a box spread expiring tomorrow. The prices today when I checked were far from what I expect them to be tomorrow, if box spreads actually work as advertised. The spread is 500 for quantity 1, so at expiration tomorrow the net value should be $50,000; when I checked today, it was 49,250.

Kevin
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Re: Let's Talk SPX Box Spreads

Post by Kevin M »

My 7/15/2022 AM settled box spread supposedly is expired, but the 4 legs are still shown in my positions with the values from yesterday's close. With these values I would receive 50,309.00, but it should be 50,000. I understand that the cash won't settle until Monday, but I would've expected to see the options expired and a cash credit on the day of expiration.

Obviously I will see what happens when it happens, but I thought sharing this would be useful to other less experienced box spread traders.

Kevin
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Re: Let's Talk SPX Box Spreads

Post by kxl19 »

Adding another data point, I have 2 short boxes also expiring this afternoon.

The value has converging to exactly what I'd expect. The day before, the value was slightly off by 0.03%, but as of this afternoon, the value is exactly correct.

I'll confirm once the debit happens, but don't expect any surprises.
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Re: Let's Talk SPX Box Spreads

Post by Investing Lawyer »

Kevin M wrote: Thu Jul 14, 2022 10:09 pm
Investing Lawyer wrote: Thu Jul 14, 2022 9:12 pm I wanted to post because one of box spread had a bad print tonight -70k unrealized loss in one of a couple of boxes I have, but my "excess liquidity" measure on IB was not affected by the bad print. Unsurprisingly this happened on "uneven" strikes of 4750 for both the call and the put.

So it seems IB has programmed the bad print for boxes issue away. However, I'd worry that if you "legged" into the trade, the programming would not be as smart.
Can you explain this in simpler terms for those of us new to box spreads? After all, this thread is for those of us who aren't big options traders.

What is a "bad print"?

Why is a bad print more likely for uneven strikes?

What does "legged into the trade" mean? Does it mean buy the 4 legs separately instead of all at once? Why would anyone do that, since we want all four legs of the box to be connected (unable to be assigned or exercised separately).

I have a box spread expiring tomorrow. The prices today when I checked were far from what I expect them to be tomorrow, if box spreads actually work as advertised. The spread is 500 for quantity 1, so at expiration tomorrow the net value should be $50,000; when I checked today, it was 49,250.

Kevin

Bad print: The "value" of your positions reflected in your brokerage account are likely either quoted on the last reportable trade or the mid-point from the bid/ask spread. If there's a trade that occurs far from a good "market" price or if there's a terrible bid/ask spread the "value" shown on your brokerage statement could represent a stale trade or not fair value price. Look at the option sheets to see the volume and open interest difference between the 4500 strikes and 4750. The fewer trades the less liquidity, the less accurate your brokerage's system's accounting for value.

Legging into the trade: buying the parts of the box individually. Individual option prices on the SPX are going to be highly liquid with narrow bid/asks spreads. Box spreads (as a single order) have huge bid/asks spreads, which require the "walking" of the limit orders down until executed. Its a trade-off for commissions versus spreads narrowing. Doing a box-spread does not have anything to do with preventing legs being assigned separately. For American options, in SPY, your box spread is subject to early assignment risk on its individual parts.

Check your brokerage statement after everything settles.
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Re: Let's Talk SPX Box Spreads

Post by InvestorDave »

Kevin M wrote: Fri Jul 15, 2022 12:20 pm My 7/15/2022 AM settled box spread supposedly is expired, but the 4 legs are still shown in my positions with the values from yesterday's close. With these values I would receive 50,309.00, but it should be 50,000. I understand that the cash won't settle until Monday, but I would've expected to see the options expired and a cash credit on the day of expiration.

Obviously I will see what happens when it happens, but I thought sharing this would be useful to other less experienced box spread traders.

Kevin
They don’t actually get assigned or expire until the day after the expiration date. I also had a box spread loan for 7/15 and got notifications that legs were assigned/expired and the correct amounts were debited from my account. Check this morning and see that your positions ended as expected.
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Re: Let's Talk SPX Box Spreads

Post by InvestorDave »

Just to add a little more information. Most options expire based on their end of day value ON the expiration date. So a 7/15 option expiration means it gets settled based on the value of the underlying stock at the END of 7/15. Most brokerages do the settlement overnight after the trading day ends.

The only option that I’m aware of that acts differently are VIX options (there may be others).

CORRECTION: The options are settled differently based on whether they are AM or PM settled. SPX monthly options have both an AM settled and a PM settled version. This just means that the settlement value is determined by either the beginning day value or the ending day value of SPX. Either way, the funds are not debited/credited to your account until the morning after expiration. Hopefully this is accurate now!
Last edited by InvestorDave on Sat Jul 16, 2022 12:03 pm, edited 1 time in total.
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Re: Let's Talk SPX Box Spreads

Post by fidream »

I see most trades on boxtrades.com have prices at 5 cent increments, but some trades seem to be at 1 cent increments. Is there a particular broker that allows penny increments? Or is this a sec or CBOE thing? At interactive brokers, I'm locked at 5 cents. I'm asking because on small spreads, it's a huge difference going up/down a few cents.

Also to that vein, could boxspreads.com have a checkbox to lock it into 5 cents if that's required?
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Re: Let's Talk SPX Box Spreads

Post by Kevin M »

Kevin M wrote: Fri Jul 15, 2022 12:20 pm My 7/15/2022 AM settled box spread supposedly is expired, but the 4 legs are still shown in my positions with the values from yesterday's close. With these values I would receive 50,309.00, but it should be 50,000. I understand that the cash won't settle until Monday, but I would've expected to see the options expired and a cash credit on the day of expiration.

Obviously I will see what happens when it happens, but I thought sharing this would be useful to other less experienced box spread traders.

Kevin
I actually had two boxes expire yesterday, one in my IRA and one in my trust account.

Got a couple of emails from Fidelity this morning at about 5 AM ET indicating that some options had been exercised. These are the transactions I see:

Image

Settlement is 7/18/2022.

As expected, the one with the 3,700 and 4,000 strikes netted to $30,000, and the one with the 4,000 and 4,500 strikes netted to $50,000.

In both accounts the proceeds from the box spreads appears as pending activity in the Positions screen. In the trust account, on the Balances page, it shows as a margin credit, and is available for trading without margin impact. In the IRA, which is not a true margin account, it doesn't show up anywhere on the Balances page.

I feel better now that I've seen at least one through to expiration, and will start adding to my box spreads in the trust account.

Kevin
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Re: Let's Talk SPX Box Spreads

Post by muffins14 »

I’m considering re-consolidating at Fidelity after my IBKR adventure.

Any gotchas I need to know about with boxes (as loans) at fidelity vs boxes at IBKR? For example, is it more likely one leg of the box gets exercised at Fidelity?
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Re: Let's Talk SPX Box Spreads

Post by Kevin M »

muffins14 wrote: Sun Jul 17, 2022 11:26 am I’m considering re-consolidating at Fidelity after my IBKR adventure.

Any gotchas I need to know about with boxes (as loans) at fidelity vs boxes at IBKR? For example, is it more likely one leg of the box gets exercised at Fidelity?
I think one of the premises of using SPX box spreads is that SPX options are European style, so no early exercise is possible. I'm certainly counting on that, and so far it's the case for me.
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Re: Let's Talk SPX Box Spreads

Post by Nathan Drake »

muffins14 wrote: Sun Jul 17, 2022 11:26 am I’m considering re-consolidating at Fidelity after my IBKR adventure.

Any gotchas I need to know about with boxes (as loans) at fidelity vs boxes at IBKR? For example, is it more likely one leg of the box gets exercised at Fidelity?
I’m considering box spreads at Fidelity as well to get cheap margin

But I also don’t want it to obfuscate net worth tracking. Does the box spread show up as a liability or will Fidelity look like you have a large gain in net worth without a corresponding liability?

I have most funds at fidelity but use personal capital to track net worth
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Re: Let's Talk SPX Box Spreads

Post by indexfundfan »

Nathan Drake wrote: Sun Jul 17, 2022 6:09 pm I’m considering box spreads at Fidelity as well to get cheap margin

But I also don’t want it to obfuscate net worth tracking. Does the box spread show up as a liability or will Fidelity look like you have a large gain in net worth without a corresponding liability?

I have most funds at fidelity but use personal capital to track net worth
Fidelity shows you the market value of each leg of the box spread. If you are short, the sum will be negative (liability).
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