box spreads versus exchange traded financing

[lpope]

Really appreciate the work @adamhg. Just placed a box sell order for the first time to get some experience with the strategy.

Is there a good non section 1256 instrument to use? From a funding perspective, it would be better to create ST losses as I have some LT gains. Different case if you're selling obviously. I'm ok with early exercise risk if it can be managed sensibly but would guess SPY has transaction cost issues.

Also curious for those that fund this way, what months can you actively trade? Is the action all in the front month or goes well out into the curve?

 

[lpope]

Did front month 4k/5k. So far, so interesting. Got a reasonable execution that should save me ~50bps, though I need to do cash management now and that could be a bit of a pain. IBKR marking the box a bit erratically and I see how this could go wrong with a data feed problem.

Are there issues with doing dirty boxes in practice? Would have been happy to leave off the long 5k call. Pretty sure it's negative EV standalone, especially with commission, and I'm up for selling the tail but maybe bad for margin or execution.

 

[newwurldmn]

I'm just proposing the OCC create some Schelling point to aggregate all the people who want to trade box spreads into a more liquid market. I don't care whether what is being traded is still technically a European box spread. Presently the action is spread across too many different strikes, dates, and tickers so it's much less liquid than it could be.

you could create a business where you offer people credit at lower rates than their local banks and fund it via box spreads through the occ.

 

[Statistical Trader]

it's absolutely not possible to get close to market rates because securities lending is heavily regulated. This in turn costs a ton of money to facilitate the red tape so anyone who forwards you the lending rates 1:1 would be out of business by the end of the year unless you are charged on another end

That's what I thought. Appreciate the reply.

Also:
@MrMuppet
@FSU
@newwurldmn
Appreciated following along on that conversation.

 

[lpope]

So far so good. Box spread expired yesterday without incident and ended up saving me ~50bps and maybe as importantly has potential to make other brokers competitive for my use case. Appreciation again to boxtrades.com.