My experience with twks is that their system is awful awful awful. I hated it. Best of luck
Let's Talk SPX Box Spreads
Re: Let's Talk SPX Box Spreads
Re: Let's Talk SPX Box Spreads
[See next post --admin LadyGeek]
Might want to start your own thread, guarantee someone has your answer but will not see it since this is a thread about SPX box spreads
Might want to start your own thread, guarantee someone has your answer but will not see it since this is a thread about SPX box spreads
Re: Let's Talk SPX Box Spreads
^^^ Done. I moved Lowlim's question into a new thread. See: Bad experience at Interactive Brokers using ACATS transfers
(Thanks to the member who reported the post and explained what's wrong.)
(Thanks to the member who reported the post and explained what's wrong.)
- indexfundfan
- Posts: 3962
- Joined: Tue Feb 20, 2007 10:21 am
- Contact:
Re: Let's Talk SPX Box Spreads
I was planning to get on the 2-yr treasury note auction on Tuesday. Expected yield is around 2.7%.
I decided to check on box spreads as well. Looking at the recent trades, I noticed the 20-mo box yielded 2.95%. I think this is a worthy alternative.
Differences:
Treasury note interest is state tax-exempted.
Box trade return is 60% LTCG and 40% STCG (no tax due if you have capital losses to offset). Has higher risk compared to the treasury note.
I decided to check on box spreads as well. Looking at the recent trades, I noticed the 20-mo box yielded 2.95%. I think this is a worthy alternative.
Differences:
Treasury note interest is state tax-exempted.
Box trade return is 60% LTCG and 40% STCG (no tax due if you have capital losses to offset). Has higher risk compared to the treasury note.
My signature has been deleted.
-
- Posts: 2709
- Joined: Mon Mar 12, 2012 6:57 pm
Re: Let's Talk SPX Box Spreads
Long positions in box spreads are one way of parking cash that according to my research, for example some money market funds as well as other professional and institutional traders and investors use. Whether there is measurable risk, is debatable.indexfundfan wrote: ↑Sun Apr 24, 2022 11:49 am I was planning to get on the 2-yr treasury note auction on Tuesday. Expected yield is around 2.7%.
I decided to check on box spreads as well. Looking at the recent trades, I noticed the 20-mo box yielded 2.95%. I think this is a worthy alternative.
Differences:
Treasury note interest is state tax-exempted.
Box trade return is 60% LTCG and 40% STCG (no tax due if you have capital losses to offset). Has higher risk compared to the treasury note.
When you compare the yields, I think you have to compare the box yield to the zero coupon (stripped) yield on the treasury curve, because the auctioned note of the same maturity will have somewhat lower duration because of the coupon. Something that I missed myself before. I think you can still get a bit higher rates with box spreads than with buying treasuries - a free lunch, based on supply/demand and regulatory constraints of the hedging counterparties.
- indexfundfan
- Posts: 3962
- Joined: Tue Feb 20, 2007 10:21 am
- Contact:
Re: Let's Talk SPX Box Spreads
Good point about it being "zero coupon" though not that much difference when we are talking about a 20-mo term.comeinvest wrote: ↑Sun Apr 24, 2022 10:16 pmLong positions in box spreads are one way of parking cash that according to my research, for example some money market funds as well as other professional and institutional traders and investors use. Whether there is measurable risk, is debatable.indexfundfan wrote: ↑Sun Apr 24, 2022 11:49 am I was planning to get on the 2-yr treasury note auction on Tuesday. Expected yield is around 2.7%.
I decided to check on box spreads as well. Looking at the recent trades, I noticed the 20-mo box yielded 2.95%. I think this is a worthy alternative.
Differences:
Treasury note interest is state tax-exempted.
Box trade return is 60% LTCG and 40% STCG (no tax due if you have capital losses to offset). Has higher risk compared to the treasury note.
When you compare the yields, I think you have to compare the box yield to the zero coupon (stripped) yield on the treasury curve, because the auctioned note of the same maturity will have somewhat lower duration because of the coupon. Something that I missed myself before. I think you can still get a bit higher rates with box spreads than with buying treasuries - a free lunch, based on supply/demand and regulatory constraints of the hedging counterparties.
It looks like the 2-yr note is down to less than 2.6% today.
My signature has been deleted.
-
- Posts: 346
- Joined: Tue Jan 15, 2019 7:29 pm
Re: Let's Talk SPX Box Spreads
It seems like the best time to do this would be when interest rates or low or when interest rates are decreasing.
If the implied rate on the box spread is 5-6%, that wouldn't give you much room to invest the money elsewhere to make a decent return.
If the implied rate on the box spread is 5-6%, that wouldn't give you much room to invest the money elsewhere to make a decent return.
- indexfundfan
- Posts: 3962
- Joined: Tue Feb 20, 2007 10:21 am
- Contact:
Re: Let's Talk SPX Box Spreads
Continuing discussion from the CD thread: viewtopic.php?p=6689446#p6689446MikeG62 wrote: ↑Sun May 22, 2022 7:42 amInteresting. I am up for a little education here. Can you tell us how this works exactly?indexfundfan wrote: ↑Sun May 22, 2022 7:19 amJust thought I would like to mention one additional short-term cash investment alternative here using SPX box spread option trades.
The most current recent trades (see Boxtrades.com) shows the following
4-mo (matures 9/16/22) 1.8%
7-mo (matures 12/16/22) 2.2%
13-mo (matures 6/16/23) 2.8%
19-mo (matures 12/15/23) 3.0%
Instead of earning "interest" which are taxable at your income tax rates, the return using box spreads is a combination of 60% LTCG and 40% STCG. If you have harvested capital losses to offset the gain, then you won't be paying any tax.
I went to the Boxtrades.com and it looks like you need to purchase four option contracts (two calls and two puts).
1) Are there not fees in doing so (or are they reflected in the figures shown)? It would only take very minor changes in the cost of any one of these option contracts to materially alter the return assumptions (such as it seems could happen with normal shifts in the market while placing the trades four trades). Or are they somehow placed as a single trade?
2) What do you need to do, if anything, when the option contracts reach expiration?
Yes, two calls and two puts on SPX options. These are European style options which can only be exercised on maturity. So there is no risk of one of the legs being taken out before maturity.
The fees are for four option trades. This comes up to around $2.70 in total when I use Fidelity. The four legs are placed and purchased at the same time (single trade).
You don't have to do anything on options maturity. The money will be credited to your account on settlement day (T+1).
Some things to note:
1. As far as I know, you can only do this in the taxable account. So you can't use this strategy in your IRA.
2. You need to apply for and be approved for the appropriate options trading level.
3. The value of the options are mark-to-market at the end of each calendar year. So you would be paying for your gains each year. Like CDs, you can't defer multi-year gains (interest) until maturity.
4. Because of the mark-to-market requirement, the sum of the values of each leg could have a different value from the overall box value on the last trading day of the year. This would mean that you can end up with more capital gains than expected for that year. This would be corrected / compensated when the options mature. This problem can be avoided if you don't trade options that straddle the calendar year end.
Last edited by indexfundfan on Sun May 22, 2022 9:46 am, edited 1 time in total.
My signature has been deleted.
Re: Let's Talk SPX Box Spreads
Can you explain the risk part? I don’t understand why a long SPX Box Spread is more risky than Treasury.indexfundfan wrote: ↑Sun Apr 24, 2022 11:49 am I was planning to get on the 2-yr treasury note auction on Tuesday. Expected yield is around 2.7%.
I decided to check on box spreads as well. Looking at the recent trades, I noticed the 20-mo box yielded 2.95%. I think this is a worthy alternative.
Differences:
Treasury note interest is state tax-exempted.
Box trade return is 60% LTCG and 40% STCG (no tax due if you have capital losses to offset). Has higher risk compared to the treasury note.
The sillier the market’s behavior, the greater the opportunity for the business like investor.
- indexfundfan
- Posts: 3962
- Joined: Tue Feb 20, 2007 10:21 am
- Contact:
Re: Let's Talk SPX Box Spreads
US Treasuries are generally considered the safest, backed by the US government.gougou wrote: ↑Sun May 22, 2022 9:45 amCan you explain the risk part? I don’t understand why a long SPX Box Spread is more risky than Treasury.indexfundfan wrote: ↑Sun Apr 24, 2022 11:49 am I was planning to get on the 2-yr treasury note auction on Tuesday. Expected yield is around 2.7%.
I decided to check on box spreads as well. Looking at the recent trades, I noticed the 20-mo box yielded 2.95%. I think this is a worthy alternative.
Differences:
Treasury note interest is state tax-exempted.
Box trade return is 60% LTCG and 40% STCG (no tax due if you have capital losses to offset). Has higher risk compared to the treasury note.
Options are cleared by the Options Clearing Corporation. Investopedia says
The Options Clearing Corporation (OCC) is an organization that acts as both the issuer and guarantor for options and futures contracts. The largest equity derivatives clearing organization in the world, it operates under the jurisdiction of the Commodities Futures Trading Commission (CFTC) and the U.S. Securities and Exchange Commission (SEC).
I guess it is also "safe" but perhaps a little less so compared to treasuries. Just my opinion.
My signature has been deleted.
Re: Let's Talk SPX Box Spreads
Thanks for the detailed explanation. The question is whether I can get Tier 3 status at Fidelity. I've tried a couple of times today and I keep getting a message to try back later.indexfundfan wrote: ↑Sun May 22, 2022 9:42 amContinuing discussion from the CD thread: viewtopic.php?p=6689446#p6689446MikeG62 wrote: ↑Sun May 22, 2022 7:42 amInteresting. I am up for a little education here. Can you tell us how this works exactly?indexfundfan wrote: ↑Sun May 22, 2022 7:19 amJust thought I would like to mention one additional short-term cash investment alternative here using SPX box spread option trades.
The most current recent trades (see Boxtrades.com) shows the following
4-mo (matures 9/16/22) 1.8%
7-mo (matures 12/16/22) 2.2%
13-mo (matures 6/16/23) 2.8%
19-mo (matures 12/15/23) 3.0%
Instead of earning "interest" which are taxable at your income tax rates, the return using box spreads is a combination of 60% LTCG and 40% STCG. If you have harvested capital losses to offset the gain, then you won't be paying any tax.
I went to the Boxtrades.com and it looks like you need to purchase four option contracts (two calls and two puts).
1) Are there not fees in doing so (or are they reflected in the figures shown)? It would only take very minor changes in the cost of any one of these option contracts to materially alter the return assumptions (such as it seems could happen with normal shifts in the market while placing the trades four trades). Or are they somehow placed as a single trade?
2) What do you need to do, if anything, when the option contracts reach expiration?
Yes, two calls and two puts on SPX options. These are European style options which can only be exercised on maturity. So there is no risk of one of the legs being taken out before maturity.
The fees are for four option trades. This comes up to around $2.70 in total when I use Fidelity. The four legs are placed and purchased at the same time (single trade).
You don't have to do anything on options maturity. The money will be credited to your account on settlement day (T+1).
Some things to note:
1. As far as I know, you can only do this in the taxable account. So you can't use this strategy in your IRA.
2. You need to apply for and be approved for the appropriate options trading level.
3. The value of the options are mark-to-market at the end of each calendar year. So you would be paying for your gains each year. Like CDs, you can't defer multi-year gains (interest) until maturity.
4. Because of the mark-to-market requirement, the sum of the values of each leg could have a different value from the overall box value on the last trading day of the year. This would mean that you can end up with more capital gains than expected for that year. This would be corrected / compensated when the options mature. This problem can be avoided if you don't trade options that straddle the calendar year end.
Real Knowledge Comes Only From Experience
- indexfundfan
- Posts: 3962
- Joined: Tue Feb 20, 2007 10:21 am
- Contact:
Re: Let's Talk SPX Box Spreads
I think your investment objective has to be "Most Aggressive" and make sure you have a moderate amount of options trading experience.
My signature has been deleted.
Re: Let's Talk SPX Box Spreads
I have it set as most aggressive which I think is required for even Tier 1 option trading. My experience is what my experience is. I have traded options before many years ago (but only a few times). It was more than 5 years ago so that helps. They don't ask how much experience just length of experience which seems a bit odd. I'll try again tomorrow and see what happens. Not sure I am going to do the box spreads, but would be good to know I can if I want to in the future. Thanks again for your help.indexfundfan wrote: ↑Sun May 22, 2022 4:53 pmI think your investment objective has to be "Most Aggressive" and make sure you have a moderate amount of options trading experience.
Real Knowledge Comes Only From Experience
Re: Let's Talk SPX Box Spreads
I just checked, and am already approved for Tier 3 option trading in my taxable account (and tier 1 in IRA). I don't remember actually trading options at Fidelity, but some years ago did quite a bit of covered call trading at IB. I set up both my Fidelity and Vanguard accounts as margin accounts when I opened them many years ago, just in case, and I guess I qualified for Tier 3 somehow at Fidelity
With brokered CD rates finally surpassing Treasuries at some maturities, is there any yield advantage to doing say a 2-year box spread, when 2-year non-callable brokered CD is 2.85%?
Thanks,
Kevin
With brokered CD rates finally surpassing Treasuries at some maturities, is there any yield advantage to doing say a 2-year box spread, when 2-year non-callable brokered CD is 2.85%?
Thanks,
Kevin
If I make a calculation error, #Cruncher probably will let me know.
Re: Let's Talk SPX Box Spreads
Box spreads get treated as 60% ltcg instead of ordinary income, which could be a benefit if brokered CD income is treated as ordinaryKevin M wrote: ↑Sun May 22, 2022 6:47 pm I just checked, and am already approved for Tier 3 option trading in my taxable account (and tier 1 in IRA). I don't remember actually trading options at Fidelity, but some years ago did quite a bit of covered call trading at IB. I set up both my Fidelity and Vanguard accounts as margin accounts when I opened them many years ago, just in case, and I guess I qualified for Tier 3 somehow at Fidelity
With brokered CD rates finally surpassing Treasuries at some maturities, is there any yield advantage to doing say a 2-year box spread, when 2-year non-callable brokered CD is 2.85%?
Thanks,
Kevin
- indexfundfan
- Posts: 3962
- Joined: Tue Feb 20, 2007 10:21 am
- Contact:
Re: Let's Talk SPX Box Spreads
Boxtrades.com is not tracking 2-yr box spread trades. But by interpolating between the 19-mo and 31-mo trades, it looks like the 2-yr box would yield around 3.1%.Kevin M wrote: ↑Sun May 22, 2022 6:47 pm I just checked, and am already approved for Tier 3 option trading in my taxable account (and tier 1 in IRA). I don't remember actually trading options at Fidelity, but some years ago did quite a bit of covered call trading at IB. I set up both my Fidelity and Vanguard accounts as margin accounts when I opened them many years ago, just in case, and I guess I qualified for Tier 3 somehow at Fidelity
With brokered CD rates finally surpassing Treasuries at some maturities, is there any yield advantage to doing say a 2-year box spread, when 2-year non-callable brokered CD is 2.85%?
Thanks,
Kevin
There was a paper referenced in the other (long) thread that showed that based on historical data, the box spread trades have yields around 35 bps higher than the equivalent treasuries (if I recall correctly).
My signature has been deleted.
- indexfundfan
- Posts: 3962
- Joined: Tue Feb 20, 2007 10:21 am
- Contact:
Re: Let's Talk SPX Box Spreads
The nice thing about box spread trades is that you can get practically the same rate (less the tiny commission), on either the borrower side or lender side. Usually an individual investor would not be able to borrow or lend at the same rate.MikeG62 wrote: ↑Sun May 22, 2022 5:25 pmI have it set as most aggressive which I think is required for even Tier 1 option trading. My experience is what my experience is. I have traded options before many years ago (but only a few times). It was more than 5 years ago so that helps. They don't ask how much experience just length of experience which seems a bit odd. I'll try again tomorrow and see what happens. Not sure I am going to do the box spreads, but would be good to know I can if I want to in the future. Thanks again for your help.indexfundfan wrote: ↑Sun May 22, 2022 4:53 pmI think your investment objective has to be "Most Aggressive" and make sure you have a moderate amount of options trading experience.
When I started doing box spread trades, I was on the "short" side, meaning I used boxes as loans. Such loans have fixed durations and rates. The rates were very attractive and were lower than IBKR's (variable) margin rates.
Last month, I went on the "long" side and purchased a 20-mo box with a yield of 3.0%. I am now thinking of purchasing the 13-mo at 2.8%.
My signature has been deleted.
- whodidntante
- Posts: 13114
- Joined: Thu Jan 21, 2016 10:11 pm
- Location: outside the echo chamber
Re: Let's Talk SPX Box Spreads
I do wonder about trading costs to close the position and take your money back out early, especially if the underlying moves a lot and spreads widen.comeinvest wrote: ↑Sun Apr 24, 2022 10:16 pmLong positions in box spreads are one way of parking cash that according to my research, for example some money market funds as well as other professional and institutional traders and investors use. Whether there is measurable risk, is debatable.indexfundfan wrote: ↑Sun Apr 24, 2022 11:49 am I was planning to get on the 2-yr treasury note auction on Tuesday. Expected yield is around 2.7%.
I decided to check on box spreads as well. Looking at the recent trades, I noticed the 20-mo box yielded 2.95%. I think this is a worthy alternative.
Differences:
Treasury note interest is state tax-exempted.
Box trade return is 60% LTCG and 40% STCG (no tax due if you have capital losses to offset). Has higher risk compared to the treasury note.
When you compare the yields, I think you have to compare the box yield to the zero coupon (stripped) yield on the treasury curve, because the auctioned note of the same maturity will have somewhat lower duration because of the coupon. Something that I missed myself before. I think you can still get a bit higher rates with box spreads than with buying treasuries - a free lunch, based on supply/demand and regulatory constraints of the hedging counterparties.
Re: Let's Talk SPX Box Spreads
Thanks. That's more advantageous for CDs than Treasuries.nalor511 wrote: ↑Sun May 22, 2022 6:51 pmBox spreads get treated as 60% ltcg instead of ordinary income, which could be a benefit if brokered CD income is treated as ordinaryKevin M wrote: ↑Sun May 22, 2022 6:47 pm I just checked, and am already approved for Tier 3 option trading in my taxable account (and tier 1 in IRA). I don't remember actually trading options at Fidelity, but some years ago did quite a bit of covered call trading at IB. I set up both my Fidelity and Vanguard accounts as margin accounts when I opened them many years ago, just in case, and I guess I qualified for Tier 3 somehow at Fidelity
With brokered CD rates finally surpassing Treasuries at some maturities, is there any yield advantage to doing say a 2-year box spread, when 2-year non-callable brokered CD is 2.85%?
Thanks,
Kevin
My marginal state income tax rate is 9.3%, and with Fed at 22% and LTCG at 15%, that's only a 7 point spread, and I'd only get that benefit for 60% of the income. Without doing any detailed calculations, it appears that I'd get more tax benefit from Treasuries due to the state tax exemption. I guess I'd need to do the detailed calcs to see which came out better net of taxes considering the yield advantage of the box.
Kevin
If I make a calculation error, #Cruncher probably will let me know.
Re: Let's Talk SPX Box Spreads
Could you experienced folks talk a bit about using larger spread vs smaller spread and larger quantity? TFB mentions it in his blog post, but didn't get into much detail.
Also, I'm seeing the following yields at Boxtrades.com
21 Apr 23 2.479
19 May 23 2.247
16 Jun 23 2.678
This seems analogous to yield curve inversion from Apr to May, and then a big bump for Jun. Explanations?
Thanks,
Kevin
Also, I'm seeing the following yields at Boxtrades.com
21 Apr 23 2.479
19 May 23 2.247
16 Jun 23 2.678
This seems analogous to yield curve inversion from Apr to May, and then a big bump for Jun. Explanations?
Thanks,
Kevin
If I make a calculation error, #Cruncher probably will let me know.
Re: Let's Talk SPX Box Spreads
Larger spread, fewer trades, fewer commissions, has been the only difference I've foundKevin M wrote: ↑Sun May 22, 2022 8:18 pm Could you experienced folks talk a bit about using larger spread vs smaller spread and larger quantity? TFB mentions it in his blog post, but didn't get into much detail.
Also, I'm seeing the following yields at Boxtrades.com
21 Apr 23 2.479
19 May 23 2.247
16 Jun 23 2.678
This seems analogous to yield curve inversion from Apr to May, and then a big bump for Jun. Explanations?
Thanks,
Kevin
Re: Let's Talk SPX Box Spreads
So what do you typically do?nalor511 wrote: ↑Sun May 22, 2022 8:28 pmLarger spread, fewer trades, fewer commissions, has been the only difference I've foundKevin M wrote: ↑Sun May 22, 2022 8:18 pm Could you experienced folks talk a bit about using larger spread vs smaller spread and larger quantity? TFB mentions it in his blog post, but didn't get into much detail.
Also, I'm seeing the following yields at Boxtrades.com
21 Apr 23 2.479
19 May 23 2.247
16 Jun 23 2.678
This seems analogous to yield curve inversion from Apr to May, and then a big bump for Jun. Explanations?
Thanks,
Kevin
What is the largest spread that is likely to get executed?
If I make a calculation error, #Cruncher probably will let me know.
Re: Let's Talk SPX Box Spreads
boxtrades.com has good history info and rates data. I use whatever spread I need to pay only a single commission. I've done $57k and $52k in single commission, they don't have to be round numbers. There are some really big ones in the history on boxtrades, I don't think you'll have too much trouble. Put in the order, if it doesn't get filled... Cancel or edit it, no downside to trying for a bigger spread first, and break it up if you can't get the big one filedKevin M wrote: ↑Sun May 22, 2022 8:32 pmSo what do you typically do?nalor511 wrote: ↑Sun May 22, 2022 8:28 pmLarger spread, fewer trades, fewer commissions, has been the only difference I've foundKevin M wrote: ↑Sun May 22, 2022 8:18 pm Could you experienced folks talk a bit about using larger spread vs smaller spread and larger quantity? TFB mentions it in his blog post, but didn't get into much detail.
Also, I'm seeing the following yields at Boxtrades.com
21 Apr 23 2.479
19 May 23 2.247
16 Jun 23 2.678
This seems analogous to yield curve inversion from Apr to May, and then a big bump for Jun. Explanations?
Thanks,
Kevin
What is the largest spread that is likely to get executed?
- indexfundfan
- Posts: 3962
- Joined: Tue Feb 20, 2007 10:21 am
- Contact:
Re: Let's Talk SPX Box Spreads
I don't think those trades are on the same date. If you had noticed, the options that expire quarterly have more trades compared to those odd months like Apr or May. I usually only go for those quarterly options (Mar, Jun, Sep, Dec).
While individual SPX options have fair amount of trading interest / volume, there aren't that many box spread trades. So some of the data points you see are quite dated.
My signature has been deleted.
Re: Let's Talk SPX Box Spreads
OK, thanks.indexfundfan wrote: ↑Mon May 23, 2022 9:17 amI don't think those trades are on the same date. If you had noticed, the options that expire quarterly have more trades compared to those odd months like Apr or May. I usually only go for those quarterly options (Mar, Jun, Sep, Dec).
While individual SPX options have fair amount of trading interest / volume, there aren't that many box spread trades. So some of the data points you see are quite dated.
If I make a calculation error, #Cruncher probably will let me know.
Box Spread taxable equivalent yield
To evaluate a box spread relative to Treasury, muni, or other yields, I need to know the taxable equivalent yield (TEY) for the box spread.
I worked out the TEYs for Treasuries, munis, state munis, and funds like Vanguard Fed MM, which may be partially exempt from state income tax in my state (CA) in this thread: Taxable Equivalent Yield (TEY). Using that same approach, I derived this TEY for a box spread:
= by * (1 - ltgp * (fg + sg) - op * (f + s) ) / (1 - f - s) ,
Here are the symbol definitions and a sample result
Kevin
I worked out the TEYs for Treasuries, munis, state munis, and funds like Vanguard Fed MM, which may be partially exempt from state income tax in my state (CA) in this thread: Taxable Equivalent Yield (TEY). Using that same approach, I derived this TEY for a box spread:
= by * (1 - ltgp * (fg + sg) - op * (f + s) ) / (1 - f - s) ,
Here are the symbol definitions and a sample result
Kevin
Last edited by Kevin M on Wed Aug 03, 2022 2:57 pm, edited 1 time in total.
If I make a calculation error, #Cruncher probably will let me know.
Re: Let's Talk SPX Box Spreads
Using the TEY formulas, I compared most recent Dec 15 2023 rate from boxtrades.com of 2.58%, TEY = 2.74% to the Treasury maturing 12/15/2023 yield of 2.28%, TEY = 2.59%. Box trade yield advantage is 14 basis points, which isn't enough to make it worth it to me.
There was an earlier trade the same day (yesterday) that got a yield of 2.84%, TEY = 3.01%, for a TEY spread of 42 bps over Treasury. That would make it worth it I think.
I guess the idea is to enter an order at a yield that would make the TEY spread attractive, and if it isn't filled, try again, or buy the Treasury.
I did move $100K to Fidelity, parked in FZDXX at about 0.62%, so I can do this if it looks good.
Kevin
There was an earlier trade the same day (yesterday) that got a yield of 2.84%, TEY = 3.01%, for a TEY spread of 42 bps over Treasury. That would make it worth it I think.
I guess the idea is to enter an order at a yield that would make the TEY spread attractive, and if it isn't filled, try again, or buy the Treasury.
I did move $100K to Fidelity, parked in FZDXX at about 0.62%, so I can do this if it looks good.
Kevin
If I make a calculation error, #Cruncher probably will let me know.
- indexfundfan
- Posts: 3962
- Joined: Tue Feb 20, 2007 10:21 am
- Contact:
Re: Let's Talk SPX Box Spreads
Thanks for the analysis.
For those with harvested losses to spare, the TEY for boxes would be even higher. But that may not be a fair comparison for everyone.
In your example above, if you have CG losses to spare, I guess the TEY for you would be 4.37% ?
For those with harvested losses to spare, the TEY for boxes would be even higher. But that may not be a fair comparison for everyone.
In your example above, if you have CG losses to spare, I guess the TEY for you would be 4.37% ?
My signature has been deleted.
Re: Let's Talk SPX Box Spreads
Setting fg = sg = 0%, I get 3.82%. As a check, with 0% LTCG tax, the TEY formula reduces to:indexfundfan wrote: ↑Tue May 24, 2022 4:02 pm Thanks for the analysis.
For those with harvested losses to spare, the TEY for boxes would be even higher. But that may not be a fair comparison for everyone.
In your example above, if you have CG losses to spare, I guess the TEY for you would be 4.37% ?
= by * (1 - op * (f + s) ) / (1 - f - s)
No?
Kevin
If I make a calculation error, #Cruncher probably will let me know.
- indexfundfan
- Posts: 3962
- Joined: Tue Feb 20, 2007 10:21 am
- Contact:
Re: Let's Talk SPX Box Spreads
The term op should be also zero right?Kevin M wrote: ↑Tue May 24, 2022 5:15 pmSetting fg = sg = 0%, I get 3.82%. As a check, with 0% LTCG tax, the TEY formula reduces to:indexfundfan wrote: ↑Tue May 24, 2022 4:02 pm Thanks for the analysis.
For those with harvested losses to spare, the TEY for boxes would be even higher. But that may not be a fair comparison for everyone.
In your example above, if you have CG losses to spare, I guess the TEY for you would be 4.37% ?
= by * (1 - op * (f + s) ) / (1 - f - s)
No?
Kevin
My signature has been deleted.
Re: Let's Talk SPX Box Spreads
Oh yeah, I forgot that this was STCG and could also be offset by capital losses, so yeah, 4.37% is correct.indexfundfan wrote: ↑Tue May 24, 2022 5:27 pmThe term op should be also zero right?Kevin M wrote: ↑Tue May 24, 2022 5:15 pmSetting fg = sg = 0%, I get 3.82%. As a check, with 0% LTCG tax, the TEY formula reduces to:indexfundfan wrote: ↑Tue May 24, 2022 4:02 pm Thanks for the analysis.
For those with harvested losses to spare, the TEY for boxes would be even higher. But that may not be a fair comparison for everyone.
In your example above, if you have CG losses to spare, I guess the TEY for you would be 4.37% ?
= by * (1 - op * (f + s) ) / (1 - f - s)
No?
Kevin
Thanks,
Kevin
If I make a calculation error, #Cruncher probably will let me know.
Re: Let's Talk SPX Box Spreads
Entered my first box spread order at Fidelity today. It was not accepted.
I decided to go small for my first one, so entered order for 1 at 100 spread (3,900 to 4,000) for the Dec 16, 2022 at 98.80, which happened to be the middle of the bid/ask spread. This is a yield of about 2.1%, much better than the 1.4% or so for Treasury maturing around the same date.
After awhile, I bumped it to 98.90, about 2%, but it was cancelled at the close.
The bid ask spread was very large, like 95 to 105 or something like that. Is this normal? Where in the bid/ask spread do you usually place your orders?
Kevin
I decided to go small for my first one, so entered order for 1 at 100 spread (3,900 to 4,000) for the Dec 16, 2022 at 98.80, which happened to be the middle of the bid/ask spread. This is a yield of about 2.1%, much better than the 1.4% or so for Treasury maturing around the same date.
After awhile, I bumped it to 98.90, about 2%, but it was cancelled at the close.
The bid ask spread was very large, like 95 to 105 or something like that. Is this normal? Where in the bid/ask spread do you usually place your orders?
Kevin
If I make a calculation error, #Cruncher probably will let me know.
- indexfundfan
- Posts: 3962
- Joined: Tue Feb 20, 2007 10:21 am
- Contact:
Re: Let's Talk SPX Box Spreads
From my experience, the trades seldom transact at the mid-point listed in the quote.Kevin M wrote: ↑Wed May 25, 2022 5:58 pm Entered my first box spread order at Fidelity today. It was not accepted.
I decided to go small for my first one, so entered order for 1 at 100 spread (3,900 to 4,000) for the Dec 16, 2022 at 98.80, which happened to be the middle of the bid/ask spread. This is a yield of about 2.1%, much better than the 1.4% or so for Treasury maturing around the same date.
After awhile, I bumped it to 98.90, about 2%, but it was cancelled at the close.
The bid ask spread was very large, like 95 to 105 or something like that. Is this normal? Where in the bid/ask spread do you usually place your orders?
Kevin
To get the best deal, you need to be patient. It could take a day or two. But if you are willing to accept the 30 to 40 bps premium over treasuries, It will fill faster. I now have an order opened for Jun 2023 (13-mo). Aiming for 2.8% but no takers so far. I know the one-year is only 2.01% today but sometimes you get lucky.
My signature has been deleted.
Re: Let's Talk SPX Box Spreads
OK, so first, it sounds like you do GTC orders instead of Day. Correct?indexfundfan wrote: ↑Wed May 25, 2022 6:07 pmFrom my experience, the trades seldom transact at the mid-point listed in the quote.Kevin M wrote: ↑Wed May 25, 2022 5:58 pm Entered my first box spread order at Fidelity today. It was not accepted.
I decided to go small for my first one, so entered order for 1 at 100 spread (3,900 to 4,000) for the Dec 16, 2022 at 98.80, which happened to be the middle of the bid/ask spread. This is a yield of about 2.1%, much better than the 1.4% or so for Treasury maturing around the same date.
After awhile, I bumped it to 98.90, about 2%, but it was cancelled at the close.
The bid ask spread was very large, like 95 to 105 or something like that. Is this normal? Where in the bid/ask spread do you usually place your orders?
Kevin
To get the best deal, you need to be patient. It could take a day or two. But if you are willing to accept the 30 to 40 bps premium over treasuries, It will fill faster. I now have an order opened for Jun 2023 (13-mo). Aiming for 2.8% but no takers so far. I know the one-year is only 2.01% today but sometimes you get lucky.
Next, do you pay any attention to the ask price when entering your order? It sounds like you just enter an order looking for a certain rate.
Thanks,
Kevin
If I make a calculation error, #Cruncher probably will let me know.
- indexfundfan
- Posts: 3962
- Joined: Tue Feb 20, 2007 10:21 am
- Contact:
Re: Let's Talk SPX Box Spreads
Yes, I use GTC order and monitor it over the next few days until it fills. The order entry is too cumbersome to enter every day.Kevin M wrote: ↑Wed May 25, 2022 6:13 pmOK, so first, it sounds like you do GTC orders instead of Day. Correct?indexfundfan wrote: ↑Wed May 25, 2022 6:07 pmFrom my experience, the trades seldom transact at the mid-point listed in the quote.Kevin M wrote: ↑Wed May 25, 2022 5:58 pm Entered my first box spread order at Fidelity today. It was not accepted.
I decided to go small for my first one, so entered order for 1 at 100 spread (3,900 to 4,000) for the Dec 16, 2022 at 98.80, which happened to be the middle of the bid/ask spread. This is a yield of about 2.1%, much better than the 1.4% or so for Treasury maturing around the same date.
After awhile, I bumped it to 98.90, about 2%, but it was cancelled at the close.
The bid ask spread was very large, like 95 to 105 or something like that. Is this normal? Where in the bid/ask spread do you usually place your orders?
Kevin
To get the best deal, you need to be patient. It could take a day or two. But if you are willing to accept the 30 to 40 bps premium over treasuries, It will fill faster. I now have an order opened for Jun 2023 (13-mo). Aiming for 2.8% but no takers so far. I know the one-year is only 2.01% today but sometimes you get lucky.
Next, do you pay any attention to the ask price when entering your order? It sounds like you just enter an order looking for a certain rate.
Thanks,
Kevin
I don't really pay much attention to the ask or bid prices. I just look for the final debit number, which itself is determined by the rate I am willing to accept.
My signature has been deleted.
Re: Let's Talk SPX Box Spreads
For these orders in Fido - what should I set the trade condition to? None or “all or none”?Kevin M wrote: ↑Wed May 25, 2022 5:58 pm Entered my first box spread order at Fidelity today. It was not accepted.
I decided to go small for my first one, so entered order for 1 at 100 spread (3,900 to 4,000) for the Dec 16, 2022 at 98.80, which happened to be the middle of the bid/ask spread. This is a yield of about 2.1%, much better than the 1.4% or so for Treasury maturing around the same date.
After awhile, I bumped it to 98.90, about 2%, but it was cancelled at the close.
The bid ask spread was very large, like 95 to 105 or something like that. Is this normal? Where in the bid/ask spread do you usually place your orders?
Kevin
Thanks for doing the TEY analysis, this is an interesting way to get higher yield than a similar duration treasury
Re: Let's Talk SPX Box Spreads
I don't remember even seeing that choice. If you order more than quantity 1, "all or none" typically would tell them that you want your full quantity filled or nothing. My understanding is that a single leg cannot be executed--all legs must be executed for a box spread, so all or none would not apply to the individual legs.kxl19 wrote: ↑Wed May 25, 2022 8:46 pmFor these orders in Fido - what should I set the trade condition to? None or “all or none”?Kevin M wrote: ↑Wed May 25, 2022 5:58 pm Entered my first box spread order at Fidelity today. It was not accepted.
I decided to go small for my first one, so entered order for 1 at 100 spread (3,900 to 4,000) for the Dec 16, 2022 at 98.80, which happened to be the middle of the bid/ask spread. This is a yield of about 2.1%, much better than the 1.4% or so for Treasury maturing around the same date.
After awhile, I bumped it to 98.90, about 2%, but it was cancelled at the close.
The bid ask spread was very large, like 95 to 105 or something like that. Is this normal? Where in the bid/ask spread do you usually place your orders?
Kevin
Thanks for doing the TEY analysis, this is an interesting way to get higher yield than a similar duration treasury
If I make a calculation error, #Cruncher probably will let me know.
Re: Let's Talk Box Spreads
Could you go into more detail about this? IBKR can potentially screw you over with its algorithm? What about IBKR makes it more dangerous than other brokers?
Re: Let's Talk SPX Box Spreads
This is exactly what I've been doing. Using long box spreads to park cash. Here's some examples of institutional funds doing the same:comeinvest wrote: ↑Sun Apr 24, 2022 10:16 pm Long positions in box spreads are one way of parking cash that according to my research, for example some money market funds as well as other professional and institutional traders and investors use. Whether there is measurable risk, is debatable.
https://www.sec.gov/Archives/edgar/data/1464413/000146441320000097/r497k0720.htmThe Advisor may allocate a portion of the Fund’s assets to cash or cash equivalents, including United States Treasury Securities, money-market instruments, money-market mutual funds or option “box spreads.”
https://www.sec.gov/Archives/edgar/data ... 210624.htmThe Collateral Portfolio may be invested in short-term fixed-income securities, including corporate bonds and other corporate debt securities, asset-backed securities (“ABS”), securities issued by the U.S. Government or its agencies and instrumentalities, securities issued by non-U.S. governments or their agencies and instrumentalities, money market securities and funds, other interest-bearing instruments, cash, ETFs that primarily invest in any of the foregoing instruments, and options box spreads.
It's been going really well. Keeps funds in my brokerage account and earns way more than any other option there. Liquidity is there if I need to exit quick, but otherwise I'm doing 3 month ladders every ~1 month or so I should always have about 1/3 of my cash available within a month's notice near risk-free.
- martincmartin
- Posts: 900
- Joined: Wed Jul 02, 2014 3:04 pm
- Location: Boston, MA USA
Re: Let's Talk SPX Box Spreads
I've heard that one way the ultra-rich pay no taxes is by taking out a loan to pay their living expenses, using their stock as collateral, and never paying off the loan, i.e. continually rolling it over. When they die, both their stock & debt is part of their estate, but thanks to the step up in basis, their heirs can sell the stock to pay off the loan, and boom, no taxes were paid on those living expenses.
Is that something open to us not-ultra-rich but FIRE? Could box spreads be a part of that? What are the risks and trade offs?
Is that something open to us not-ultra-rich but FIRE? Could box spreads be a part of that? What are the risks and trade offs?
Re: Let's Talk SPX Box Spreads
Could you please share how you set your price when entering the order?adamhg wrote: ↑Sat May 28, 2022 4:17 pm It's been going really well. Keeps funds in my brokerage account and earns way more than any other option there. Liquidity is there if I need to exit quick, but otherwise I'm doing 3 month ladders every ~1 month or so I should always have about 1/3 of my cash available within a month's notice near risk-free.
Thanks,
Kevin
If I make a calculation error, #Cruncher probably will let me know.
Re: Let's Talk SPX Box Spreads
Full disclosure if you don't follow the IB box spread thread, I maintain the boxtrades.com site. So I usually use that as a baseline. The data is always from the the previous day though so I usually see how treasuries moved since open and use that to approximate what I'd think the market rate should be.
I also have a script that can auto increment my offer. I've used it in the past to immediately find the fill, but I wouldn't recommend that and won't be doing that again. Instead, I've configured it to move every few hours if I'm looking for a faster full.
Re: Let's Talk SPX Box Spreads
I haven't followed the other thread, but I'll scan it to see what I can learn. Thanks for chiming in here.adamhg wrote: ↑Sun May 29, 2022 5:42 pmFull disclosure if you don't follow the IB box spread thread, I maintain the boxtrades.com site. So I usually use that as a baseline. The data is always from the the previous day though so I usually see how treasuries moved since open and use that to approximate what I'd think the market rate should be.
I also have a script that can auto increment my offer. I've used it in the past to immediately find the fill, but I wouldn't recommend that and won't be doing that again. Instead, I've configured it to move every few hours if I'm looking for a faster full.
OK, so say that yesterday there was a fill at 2.5% and the Treasury maturing on or about the same date had an ask yield of 2.1%, so a yield spread of 40 basis points. If the ask yield for the same Treasury today is 2.0%, would you enter an order to try and get 2.4%?
Do you have a certain yield spread over the Treasury that you're looking for?
Thanks,
Kevin
If I make a calculation error, #Cruncher probably will let me know.
Re: Let's Talk SPX Box Spreads
There's a study in the other thread showing that box spreads yield about 30-40bp over treasuries. I don't have the link on hand unfortunately, but it's linked a few times so hopefully not too hard to track down.Kevin M wrote: ↑Sun May 29, 2022 6:20 pm I haven't followed the other thread, but I'll scan it to see what I can learn. Thanks for chiming in here.
OK, so say that yesterday there was a fill at 2.5% and the Treasury maturing on or about the same date had an ask yield of 2.1%, so a yield spread of 40 basis points. If the ask yield for the same Treasury today is 2.0%, would you enter an order to try and get 2.4%?
Do you have a certain yield spread over the Treasury that you're looking for?
Thanks,
Kevin
Last edited by adamhg on Sun May 29, 2022 7:02 pm, edited 2 times in total.
Re: Let's Talk SPX Box Spreads
0.35-0.36% above treasuries seems to work for me. You might get 0.4%, but you might not get it right awayKevin M wrote: ↑Sun May 29, 2022 6:20 pmI haven't followed the other thread, but I'll scan it to see what I can learn. Thanks for chiming in here.adamhg wrote: ↑Sun May 29, 2022 5:42 pmFull disclosure if you don't follow the IB box spread thread, I maintain the boxtrades.com site. So I usually use that as a baseline. The data is always from the the previous day though so I usually see how treasuries moved since open and use that to approximate what I'd think the market rate should be.
I also have a script that can auto increment my offer. I've used it in the past to immediately find the fill, but I wouldn't recommend that and won't be doing that again. Instead, I've configured it to move every few hours if I'm looking for a faster full.
OK, so say that yesterday there was a fill at 2.5% and the Treasury maturing on or about the same date had an ask yield of 2.1%, so a yield spread of 40 basis points. If the ask yield for the same Treasury today is 2.0%, would you enter an order to try and get 2.4%?
Do you have a certain yield spread over the Treasury that you're looking for?
Thanks,
Kevin
Re: Let's Talk SPX Box Spreads
Thanks for the replies about spread over Treasuries. I think what I'll do is start with a yield spread of 40 bps over the Treasury, and then increase price until I get to the minimum yield I'm willing to accept.
I'm thinking of a spread of 200 for qty 1 for the 16 Sep 2022. Boxtrades.com shows rates of about 1.65% for several trades of this box spread on Friday, and the 9/15/2022 Treasury ask yield was 1.04% on Friday afternoon. This looks like a yield spread of more than 60 bps. Am I misunderstanding something?
Thanks,
Kevin
I'm thinking of a spread of 200 for qty 1 for the 16 Sep 2022. Boxtrades.com shows rates of about 1.65% for several trades of this box spread on Friday, and the 9/15/2022 Treasury ask yield was 1.04% on Friday afternoon. This looks like a yield spread of more than 60 bps. Am I misunderstanding something?
Thanks,
Kevin
If I make a calculation error, #Cruncher probably will let me know.
- indexfundfan
- Posts: 3962
- Joined: Tue Feb 20, 2007 10:21 am
- Contact:
Re: Let's Talk SPX Box Spreads
The treasury you are looking at is the 3-mo @ 1.08% correct? The 9/15/22 box spread is more like 3.5-mo, with a little longer duration. This may partially explain the higher 60 bps spread.Kevin M wrote: ↑Sun May 29, 2022 7:35 pm Thanks for the replies about spread over Treasuries. I think what I'll do is start with a yield spread of 40 bps over the Treasury, and then increase price until I get to the minimum yield I'm willing to accept.
I'm thinking of a spread of 200 for qty 1 for the 16 Sep 2022. Boxtrades.com shows rates of about 1.65% for several trades of this box spread on Friday, and the 9/15/2022 Treasury ask yield was 1.04% on Friday afternoon. This looks like a yield spread of more than 60 bps. Am I misunderstanding something?
Thanks,
Kevin
Also, as it gets closer to expiration, sometimes strange numbers can be observed. I think Adam saw some negative yields last year, IIRC. Makes for a profitable short term loan.
My signature has been deleted.
Re: Let's Talk SPX Box Spreads
No, I'm looking at CUSIP 912828YF1 with maturity 09/15/2022--a Treasury actually trading on the secondary market, not the Treasury CMT yields that shows the 3mo at 1.08%. So it's 108 days to maturity compared to 109 days for the box spread.indexfundfan wrote: ↑Sun May 29, 2022 7:57 pmThe treasury you are looking at is the 3-mo @ 1.08% correct? The 9/15/22 box spread is more like 3.5-mo, with a little longer duration. This may partially explain the higher 60 bps spread.Kevin M wrote: ↑Sun May 29, 2022 7:35 pm Thanks for the replies about spread over Treasuries. I think what I'll do is start with a yield spread of 40 bps over the Treasury, and then increase price until I get to the minimum yield I'm willing to accept.
I'm thinking of a spread of 200 for qty 1 for the 16 Sep 2022. Boxtrades.com shows rates of about 1.65% for several trades of this box spread on Friday, and the 9/15/2022 Treasury ask yield was 1.04% on Friday afternoon. This looks like a yield spread of more than 60 bps. Am I misunderstanding something?
Thanks,
Kevin
Also, as it gets closer to expiration, sometimes strange numbers can be observed. I think Adam saw some negative yields last year, IIRC. Makes for a profitable short term loan.
Kevin
If I make a calculation error, #Cruncher probably will let me know.
Re: Let's Talk SPX Box Spreads
What price are you seeing? Börse has:
https://www.boerse-frankfurt.de/bond/us ... -1-5-19-22Last price 100.059
Yield in % (last price) 1.2999
-
- Posts: 2709
- Joined: Mon Mar 12, 2012 6:57 pm
Re: Let's Talk SPX Box Spreads
Yield in % (last price) 1.2999adamhg wrote: ↑Sun May 29, 2022 10:04 pmWhat price are you seeing? Börse has:
https://www.boerse-frankfurt.de/bond/us ... -1-5-19-22Last price 100.059
Yield in % (last price) 1.2999
Yield in % (ask) 1.0180
Yield in % (bid) 1.2999
Perhaps this treasury bill has only very low volume so close to expiration?
https://www.wsj.com/market-data/bonds/treasuries has
MATURITY COUPON BID ASKED CHG ASKED YIELD
9/15/2022 1.500 100.0360 100.0420 -0.0040 1.040
The bid/ask spread here is more narrow. Not sure where Börse Frankfurt gets their data from. Maybe the U.S. treasuries are traded in Germany too.