Cheaper financing than IB's margin rates?

narafa said:
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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It's less that and more of their underlying business model. Their model is to be lowest price. To get that you have to be lowest cost. To achieve that they hire a couple of smart people and have them build a software package that automates most of what humans do in other brokers. Then they hire a bunch of customer service staff at well below market rates, knowing that they'll get flunkies but not caring because they really don't have any responsibilities except to cut and paste stock answers. This works fine for 95% of situations, so if you're doing straight stock trades with them or anything that doesn't involve margin, and nothing ever goes wrong, then you're fine. So 95% of their customers are fine. The edge cases they just program to ensure that IB never incurs any risk, and as long as they don't incur risk they don't care if they're treated properly or not. I'm guessing they have a couple highly paid attorneys to deal with the fallout from that.
It's not a moral judgement on them, their business model is simply set up the way it is. It enables them to offer low/no commission and low margin interest rates, and makes Peterffy a ton of money, so it's doing what it was intended to do I guess. It's just a singularly bad place to be if you're trading vertical spread, selling put options, or a half dozen other edge case situations where they're really bad and their model calls for them to not give a shit. If you're not in one of those cases, they're probably fine. If you are, it's a horrible place to be and almost any other broker is much better.
 
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.

View attachment 222584
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You could also use the scale trader to lower the prices every 2 seconds to save the hassle of doing it manually.
 
Sig said:
Yep, sell as wide a box as you can on SPX options on the COB. They quote way wider than you'd expect for exactly this purpose. You end up paying just above treasury rates baked into the slightly lower price you get for the box then it will give you at expiration. Of course as a box it has no market risk. One note is that you have to sell the box then buy your stock to take advantage of the margin on the box. You can enter some orders in a paper trading account to see exactly how it works mechanically.
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Sorry for resurrecting this thread, but I'm curious about the bolded part (which you mention a few times in this thread). This sequence is the reverse of what I have seen elsewhere. For example, in this post 312 says "The only use for this is if you have negative cash before selling the box."

Similarly, in this Reddit thread, the poster repeatedly describes the use case of selling box spreads as "refinancing your margin debt."

I'd really appreciate anybody clearing up my confusion here.
 
GreenCheck said:
Sorry for resurrecting this thread, but I'm curious about the bolded part (which you mention a few times in this thread). This sequence is the reverse of what I have seen elsewhere. For example, in this post 312 says "The only use for this is if you have negative cash before selling the box."

Similarly, in this Reddit thread, the poster repeatedly describes the use case of selling box spreads as "refinancing your margin debt."

I'd really appreciate anybody clearing up my confusion here.
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This is not the case for IBHK with their risk based margin. You can sell the box whenever you like for whatever purpose (including withdrawing) as long as margin requirement is met.
 
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.

View attachment 222584
More...
Excuse me for resurrecting this thread.

It is important to set your box to be liquidated last in your setting in addition to setting up your account to be portfolio margin, (though this is not guaranteed by IB).

There was a large swing glitch in the market that could cause one of the box' legs to be liquidated like what happened on Thursday May 6, 2010,
https://www.foxnews.com/politics/obama-regulatory-authorities-investigating-wild-stock-market-swing

someone's IB account was wrecked as his Debit Put spreads were liquidated perhaps due that particular market glitch.
https://www.elitetrader.com/et/threads/put-options-liquidated-at-worst-possible-prices.198144/

To Sig,
did it happen to you that your spreads were liquidated at IB because of an event like on May 6, 2010?
 
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Fxmove88 said:
Excuse me for resurrecting this thread.

It is important to set your box to be liquidated last in your setting in addition to setting up your account to be portfolio margin, (though this is not guaranteed by IB).

There was a large swing glitch in the market that could cause one of the box' legs to be liquidated like what happened on Thursday May 6, 2010,
https://www.foxnews.com/politics/obama-regulatory-authorities-investigating-wild-stock-market-swing

someone's IB account was wrecked as his Debit Put spreads were liquidated perhaps due that particular market glitch.
https://www.elitetrader.com/et/threads/put-options-liquidated-at-worst-possible-prices.198144/

To Sig,
did it happen to you that your spreads were liquidated at IB because of an event like on May 6, 2010?
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No, it was just that the spread went way OTM or ITM, I don't remember which, so the bid or ask on one side was really thin. As I'm sure you've seen, when this happens you get throwaway bids or asks that I assume are often left over GTC orders that no longer have any connection to reality that temporarily become the best bid/ask when the MMs go away or refresh their book. The Algorithm uses these as if they are the market, which would be fine except it ignores the fact that you have a vertical spread so your loss is limited to the spread. So The Algorithm will decide your 5 point SPX vertical spread is down 9 points and autoliquidate you, despite the fact that you could never, under any circumstance, lose more that 5 points on that cash settled European option spread. There's no no need for a volatile market to have this happen, it's actually somewhat routine. For a while I would put my own GTC orders in to ensure that never happened, but ended up moving to a professional broker that doesn't require me to play those silly games and provides real customer service.
 
Sig said:
No, it was just that the spread went way OTM or ITM, I don't remember which, so the bid or ask on one side was really thin. As I'm sure you've seen, when this happens you get throwaway bids or asks that I assume are often left over GTC orders that no longer have any connection to reality that temporarily become the best bid/ask when the MMs go away or refresh their book. The Algorithm uses these as if they are the market, which would be fine except it ignores the fact that you have a vertical spread so your loss is limited to the spread. So The Algorithm will decide your 5 point SPX vertical spread is down 9 points and autoliquidate you, despite the fact that you could never, under any circumstance, lose more that 5 points on that cash settled European option spread. There's no no need for a volatile market to have this happen, it's actually somewhat routine. For a while I would put my own GTC orders in to ensure that never happened, but ended up moving to a professional broker that doesn't require me to play those silly games and provides real customer service.
More...

Thanks for sharing your past experience. It is indeed quite dangerous to trade options with IBKR. An Algo is indeed just a computer program and it only executes according to the programmers view. There are some events that may have never been in the minds of the programmers when they create it.
https://www.optionsbro.com/interactive-brokers-dangerous-options-futures-trading/
 
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Fxmove88 said:
Excuse me for resurrecting this thread.

It is important to set your box to be liquidated last in your setting in addition to setting up your account to be portfolio margin, (though this is not guaranteed by IB).

There was a large swing glitch in the market that could cause one of the box' legs to be liquidated like what happened on Thursday May 6, 2010,
https://www.foxnews.com/politics/obama-regulatory-authorities-investigating-wild-stock-market-swing

someone's IB account was wrecked as his Debit Put spreads were liquidated perhaps due that particular market glitch.
https://www.elitetrader.com/et/threads/put-options-liquidated-at-worst-possible-prices.198144/

To Sig,
did it happen to you that your spreads were liquidated at IB because of an event like on May 6, 2010?
More...

It turned out that particular trader had margin problem, such a long winding thread
https://www.elitetrader.com/et/thre...dated-at-worst-possible-prices.198144/page-30
 
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