How do you practically trade box spreads?

newwurldmn said:
you’ll trade 10 cents off of mid on the box. Posted markets in SPX are very wide but it’s trades almost choice.
More...
Is there any reason why anyone wouldn't lend at 4 percent using the box market? European exercise on SPX seems to make it a nearly risk free position.
 
ETJ said:
Sounds like a silly answer. Get a firm with a floor broker and have them sample the crowd for rates, report back and pull the trigger. You'll spend more on brokerage, but beat the pure electronic rate. SPX boxes are also quoted by a number of vendor terminals if you have access, but that is just a sense.
Make sure if you're getting a comparison to a bank rate to try to negotiate the jumbo rate if possible.
MMs in the crowd will quote the rate - pencil one yourself and then net out fees and brokerage. Even paying a floor broker might still result in a better rate. Fees are fees and just about every brokerage firm should be able to access a floor broker. Some will do a box for a fixed brokerage. Many won't if your firm is an infrequent user.
The price of the actual options is irrelevant - unless you plan to exit early and electronically.
More...
A retailer would have to do 25 or a 100 spx lots to access the floor it seems (could be wrong). Even with 1 M portfolio, that's huge size.
 
Robert Morse said:
One more point. If you have an account with equity of say $250,000 and want to be flat to day and just want to maximize your riskless rate, and you buy close to $250,000 in a box spread discounted out 6 months. Your get your targeted return. Nice. Now, in 2 weeks or 2 months, you change your mind and want to buy some stocks. You then have to sell the box spread or incur debit interest charges. With a T-bill or money market fund, you just sell it. No work and less risk.
More...
Bob is there any reason you wouldn't buy the box? Thanks.
 
It is a simple question with a complicated answer. Am I a market maker or a retail customer? What does my book look like if a MM? What does my clearing firm charge me to borrow funds. What do they give me on credit balances? How much margin does it require? What are my transaction costs? Do I have short option contracts to offset the debit balance. How long am I locking in 4% if I buy or sell it? I would only, as a MM, buy a .SPX box if the cost lines up as free money. There are more reasons to short the .SPX box.

Gambit said:
Bob is there any reason you wouldn't buy the box? Thanks.
More...
 
Gambit said:
Is there any reason why anyone wouldn't lend at 4 percent using the box market? European exercise on SPX seems to make it a nearly risk free position.
More...

If their cost of financing is higher than 4percent

if they can earn more than 4percent on that capital.
 
newwurldmn said:
If their cost of financing is higher than 4percent

if they can earn more than 4percent on that capital.
More...
I think I need to use a proper margin calculator. I assumed since the position was nearly risk free, margin would be almost 0 using TIMS/ Portfolio margin.
 
A box spread is something you trade into, not a position you initiate. When you are sitting on an ITM vertical, it's usually better to box it instead of closing the position
 
You must log in or register to reply here.
Back
Top