Selling SPX box for financing

A

alexpun

Hello

I am with IB and I started selling SPX 1000-2000 boxes to borrow money for my other position since the implied interest rate are cheaper than the IB tier 2 interest rate.

I have risk based margin and IB only require a few hundred dollars for margin.

Am I missing something or is it standard for IB customers to finance their position like this?

Another question is that to place the box order is it standard to start with a price than slowly increase the price, until a MM bot pick it up? I can see my order in CBOE COB but I am not sure the proper way to do this.

How about the usual price for this position? I can't seem to find time and sale history of the complex orders. Is somewhere about 2.1% implied interest for 3 month box a good price?
 
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Alex, that implied rate is relatively high (because interest rates have been going up over the past years). If you look at it as a spread to something like 3m libor, your rate is like +40. I would consider it a little high but not crazy vs where I’ve seen thingns price lately. I don’t know how much funding you’re trying to do, but if it is small lots it’s probably fine to leave it as is. If you’re looking for more size you should consider looking to better brokers (like major banks) for those specific trades as you can maybe save yourself 3-10bp in most times. Banks are typically in the business of lending money
 
I have made a few posts recently about this. Your implied rate of about 2.1% is about what I have been seeing as well. I assume you are saying you are selling the 1000/2000 box as opposed to saying you are selling 1000 to 2000 total boxes? Even wider boxes will trade as well, so your commissions will be reduced even more.

Walking down the price in the COB is a good way of going until you are filled. You may also want to check the CBOE COB on the web page to see if there are any standing orders http://www.cboe.com/cob

You should be able to see these spreads trade in time and sales. My feed (not through IB) marks spread trades, but even without that you should be able to figure out what trades are from boxes as they will be four trades at the same time.

If I see these trade again Tuesday, I will post to this thread.
 
When you sell a box you receive the difference between the strikes less the interest. But my question is, can you use that cash you receive to trade other positions ?
I thought that the cash was converted in collateral and wasn't able to be used to open new positions.
 
Thanks FSU and Jgills for the info.

I am a beginner and still small so I am only selling 1-3 such boxes. Maybe one day I could be client of these banks.
 
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raf_bcn said:
When you sell a box you receive the difference between the strikes less the interest. But my question is, can you use that cash you receive to trade other positions ?
I thought that the cash was converted in collateral and wasn't able to be used to open new positions.
More...

IB let me use the cash so I assume it is ok.
 
If you could not use the cash it will make no sense to sell a box , and that is why I have never sold a Spx box. Now that I realized that it is possible to use it I think it is a very interesting way to finance other positions .

But I don't understand Why IB, or other brokers, allows that. What happen if you use the cash to open other positions and lose. How are you going to return that money on the expiration day? I must be missing something. I'm a beginner too.

let's see the experimented traders explanation, please.
 
raf_bcn said:
If you could not use the cash it will make no sense to sell a box , and that is why I have never sold a Spx box. Now that I realized that it is possible to use it I think it is a very interesting way to finance other positions .

But I don't understand Why IB, or other brokers, allows that. What happen if you use the cash to open other positions and lose. How are you going to return that money on the expiration day? I must be missing something. I'm a beginner too.

let's see the experimented traders explanation, please.
More...
The proceeds don't add to your equity but to cash balance so you can use this cash for positions on margin instead of borrowing it from your broker.
 
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