How do you practically trade box spreads?

[newwurldmn]

He must be some time-wasting idiot.

I have yet to understand how I should manage my monthly positive cash balance.
- leaving cash in IBKR is obviously easiest but not optimal
- box bid-ask a wee too high to receive market rate, after commission will be worse than IBKR cash rate
- T-bill fine, but still the bid-ask and commission will eat away a meaningful amount since I need to adjust/roll every month
- Bond ETF is not for cash mgmt and will subject me to unwanted duration risks
- I think I will likely suck up the expense fees and buy money-market ETFs for 1month+ cash balances such as BIL, GBIL, HSUV (Canada), SHV, SGOV, but that will negatively impact margin

THe box bid/offer is like 20 cents wide. How is that too high? Commissions are like $1 each leg, so you spend like $4.2 to get $100,000 of borrowing per lot. how is that a lot of money?

Bil is yielding 2%. Fed funds is over 3% and SOFR is 3.04
The 11/29/22 tbill is 3.23 at 3.17 ytm

 

[delta_1]

Here is how I set up my account. I asked my broker to purchase one year treasuries on treasury direct.
They were deposited in my account. Those bonds are now my margin collateral but there is a haircut and only 95 percent of the bond value can be used as margin.
Now let’s say I have 95 k which is considered cash. I could buy a box with that 95 k and assuming my execution price is good, I collect interest.
So I stacked my returns with a box spread on top of treasuries.

An exchange recognized spread should be a very cheap way to put on the position:
https://www.cmegroup.com/confluence...eads+and+Combinations+Available+on+CME+Globex

 

[delta_1]

An exchange recognized spread should be a very cheap way to put on the position:
https://www.cmegroup.com/confluence...eads+and+Combinations+Available+on+CME+Globex

I wonder how big the difference is between executing via RFQ and via exchange recognized spread. Does anybody have experience with that?

Here is another explanation regarding the advantages of exchange recognized spreads:
https://www.cmegroup.com/education/files/ofm-spread-overview.pdf

Big firms definitely prefer RFQ while putting up the box with strikes far apart of each other.
This saves on commissions. The bid ask spreads will be wider but the RFQ makes sure that there is a competitive quote for this specific box spread which is demanded.

If you choose a smaller distance between the strikes then more boxes will be traded. Maybe enough to be considered a block trade - that's when your broker might come in handy and help to get a better execution.

Block trade vs exchange recognized spread would probably be the choices for best execution in the retail world.