Cheaper financing than IB's margin rates?

Please, please be careful with leverage! Borrowing 20% of your account value to invest in well-collateralized, non-public market opportunities seems reasonable to me.

But using this tool to lever a $400k account to $3m and then buying 3x ETFs is lunacy. That is what the WSB poster linked earlier in this thread did and the results are sad: https://www.reddit.com/user/Adderalin/
 
HockeyPlayer said:
I couldn't get the Option Spreads window to work for me, so I ended building a few boxes by hand using the OptionTrader | Strategy Builder functionality.

To be specific:
1) Enter SPX, choose CBOE index
2) Open OptionTrader and use the Strikes dropdown to specify a few round-number strikes (1000, 1500, etc).
3) Choose Strategy Builder, pick an expiry and build the box (click lower call offer, higher call bid, higher put offer, lower put bid).
4) Will show as a Box, then click "Add to Quote Panel" (don't add the legs)
5) I added a Mid column to the Quote Panel, it is 1983.05 in this snapshot. It bounces around but it easier than doing the math in your head.
6) You sell to borrow money, start by floating an offer at least a couple points above the midpoint, so at 1988 in this example. Then lower it a point every 5 minutes until you get filled. Each point is $100, this 2000 point box is worth $200k.

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Thank you - are you concerned at all by IB auto liquidating legs of your box on the back of rogue prints?
 
tonyf said:
Thank you - are you concerned at all by IB auto liquidating legs of your box on the back of rogue prints?
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I plan to keep my NLV well above the total cash I raised from selling boxes, so no. I've heard recommendations to put in a GTC Buy well below the market to avoid bad marks but can't confirm that solves the problem.
 
Sig said:
I may have inadvertently been confusing, sorry. If I have extra cash I could, in order of return, keep it at my broker in some kind of sweep account, buy a treasury, or buy a box. You can buy the box at a discount to it's guaranteed value at expiration, that difference is the interest just like buying a treasury at discount to face value. That's the buying a box to earn interest part.
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Could buying an SPX box be used to generate income on idle cash at a futures broker like Cannon, Optimus or AMP Futures? If so, would buying that box impact the cash available for trading futures contracts and if so, by how much? Also, would you generally be able to get more than what you would get from buying a four-week T-bill, which is paying zero now?
 
HockeyPlayer said:
I plan to keep my NLV well above the total cash I raised from selling boxes, so no. I've heard recommendations to put in a GTC Buy well below the market to avoid bad marks but can't confirm that solves the problem.
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How did your box "behave" over the last 10 days?
 
Sig said:
Do a search for "autoliquidation" and you'll find literally dozens of threads, all related to IB oddly enough, from dozens of people who have experienced the same thing. IB depends on "The Algorithm" to do auto liquidations and "The Algorithm" doesn't properly calculate the max possible loss on vertical options spreads. Everyone is subject to the same code, and if you haven't been impacted than you either don't trade them or haven't been in a situation of wide bid/ask spreads being incorrectly interpreted as larger than possible losses by "The Algorithm". This thread involves spreads that would be subject to this known error.

Those are all simple facts, there's no "presumption" going on. If you trade straight stocks without margin, IB is great for you. Carry on, and don't feel the need to comment on threads that involve vertical spreads at IB. If you engage in anything that involves a vertical spread, and the topic of this conversation does, then there's a known issue at IB with that. I'm not sure why you're attempting to color that as just some kind of bitterness on my part, presumably to be ignored for that reason? Do you dispute any of the above?
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I don't think I agree with you on that point. I also share some concerns about IB algorithms being flawed, but no in the case you mention for options vertical spreads.

An option vertical spread is prone to several risks other than the theoretical max. loss calculated simply as the difference between the 2 strike prices. There is individual legs liquidity risk and there is early assignment risk (For the ITM leg).

Vertical spread option orders are not native to most option exchanges/venues, so this is where the individual leg liquidity risk comes from, especially if you are dealing in iliquid options with very wide bid/offer spreads.

I believe you experienced the auto-liquidation in a case where the options were illiquid and thus the native & calculated vertical spread bid/offer was out of reality.

What did IB tell you regarding the situation you experienced?
 
narafa said:
I don't think I agree with you on that point. I also share some concerns about IB algorithms being flawed, but no in the case you mention for options vertical spreads.

An option vertical spread is prone to several risks other than the theoretical max. loss calculated simply as the difference between the 2 strike prices. There is individual legs liquidity risk and there is early assignment risk (For the ITM leg).

Vertical spread option orders are not native to most option exchanges/venues, so this is where the individual leg liquidity risk comes from, especially if you are dealing in iliquid options with very wide bid/offer spreads.

I believe you experienced the auto-liquidation in a case where the options were illiquid and thus the native & calculated vertical spread bid/offer was out of reality.

What did IB tell you regarding the situation you experienced?
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SPX European options. No early exercise, cash settle, no risk beyond the vertical spread width.... period. And yeah, that one trades on the COB.

What did they tell me? Well it wasn't until the third rep that they could even grasp what the issue was, I might as well have been trying to explain it to the local gas station attendant. Third one said that "The Algorithm" (and yes, they do capitalize it like it's an entity) decides how they handle it and The Algorithm can't be wrong and therefore they won't investigate or fix it, therefore I was wasting my time trying to explain it. I left them immediately after that. But again, do the search I indicated...I'm far from the only one experiencing this from them. The latest is that they apparently charge more margin to support selling a put option then the strike price.....
 
Sig said:
SPX European options. No early exercise, cash settle, no risk beyond the vertical spread width.... period. And yeah, that one trades on the COB.

What did they tell me? Well it wasn't until the third rep that they could even grasp what the issue was, I might as well have been trying to explain it to the local gas station attendant. Third one said that "The Algorithm" (and yes, they do capitalize it like it's an entity) decides how they handle it and The Algorithm can't be wrong and therefore they won't investigate or fix it, therefore I was wasting my time trying to explain it. I left them immediately after that. But again, do the search I indicated...I'm far from the only one experiencing this from them. The latest is that they apparently charge more margin to support selling a put option then the strike price.....
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Got that. SPX options are fairly liquid (Not across all strikes), but they should be fine for the case you mentioned.

I will do the search and see what cases exactly are traders complaining from.

I guess IB grew too large that they became arrogant (Typical of any company which climbs the rank of market share). They don't want to listen to their customers. I think it's the beginning of the end.
 
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