Selling SPX box for financing

I don't see it specifically documented anywhere that ELV includes American options in a PM account, but it must be the case. It's not an error in the order preview. I have a bunch of American options and my account always shows ELV = NLV - Net Liquidation Uncertainty.

Maybe I'm just more used to thinking in terms of PM accounting, but I find it more intuitive. Margin is a measure of the amount of risk you're taking, and that has to be less than the value of your portfolio.

For selling a box, the effect is the same with PM or RegT. With RegT, ELV and margin both increase, leaving excess liquidity unchanged, while with PM neither change.

If I understand correctly, buying a box is quite different. It still has no effect in a PM account, but with RegT it decreases ELV while margin is unchanged. So with $100k in a PM account you can buy ~$3M of box spreads (before hitting the 30x limit), but in a RegT account you can only buy $100k.

Is that description right for RegT?
 
Hi

elt894 said:
I don't see it specifically documented anywhere that ELV includes American options in a PM account, but it must be the case.
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Yes, I haven't found that difference anywhere. But it's a big difference and should be clearly specified.

elt894 said:
It still has no effect in a PM account, but with RegT it decreases ELV while margin is unchanged. So with $100k in a PM account you can buy ~$3M of box spreads (before hitting the 30x limit), but in a RegT account you can only buy $100k.
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Yes , this is correct.



A question about a Portfolio margin account. If selling boxes doesn't increase the ELV, as you are saying, also doesn't increase your Excess liquidity. If that is true, How are you going to finance other positions ? the OP of this thread, @alexpun states he is doing it with IB.

Please we have to clarify this question. I have read some threads about selling boxes and people like @FSU @Robert Morse @destriero @alexpun seems they have experience in doing this in Portfolio marging accounts. When you sell boxes , what happen with your equity with loan and yor margin ? It would be great if someone could help to answer these questions. thanks.
 
Suppose you are long 1000 shares of Google and 10 deep in the money puts. If the stock is 1000 and the puts are 100, that's a 1.1 million dollars in stock and option premium. If you have $300,000 in your PM account, you would need to borrow $800,000 to finance this position. Your risk margin would be very low on this position. If you sold $800,000 in boxes, you would effectively borrow that $800,000.
 
Please to simplify let's forget about the stock and the puts. So If you have 300,000 in your PM account, and sell 800,000 worth of boxes, your Equity with loan goes to 1.1 milions. You will have an excess liquidity of
1.1 and you can do whatever you want with that. It's that correct ?
thanks
 
raf_bcn said:
Please to simplify let's forget about the stock and the puts. So If you have 300,000 in your PM account, and sell 800,000 worth of boxes, your Equity with loan goes to 1.1 milions. You will have an excess liquidity of
1.1 and you can do whatever you want with that. It's that correct ?
thanks
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No I don't believe that is correct. It won't help you with risk margin. Bob Morse could probably explain it better than I.
 
I use IBKR with portfolio margin. Go to the "Account Window" in the menu "Account" on TWS. Find the "Market Value -- Real FX Balance" section.

Assume you're short 800k USD: "Total Cash" column is USD -800k. So, IBKR is financing you that at ~275bps, which you pay IBKR as interest. From what I understand from reading this thread, after selling 800k worth of boxes in this scenario, "Total Cash" would go from -800k to zero from the proceeds of the boxes. Thus you would no longer pay funding to IBKR on that cash, however your excess liquidity and all other margin figures would more or less stay the same.

Is this accurate?
 
raf_bcn said:
A question about a Portfolio margin account. If selling boxes doesn't increase the ELV, as you are saying, also doesn't increase your Excess liquidity. If that is true, How are you going to finance other positions ? the OP of this thread, @alexpun states he is doing it with IB.
More...

Selling a box does not increase excess liquidity. The OP was not saying that it did. He was using it to increase cash, so that instead of paying IB's margin rates he is paying a (hopefully) lower rate to the purchaser of the box. No one is saying it gives them unlimited liquidity. It just changes whether they pay interest to IB or the market.

Along the lines of your example, suppose your PM account has a net value of $300k, with $1.1M in stock and -$800k in cash. You sell $800k in box spreads. Now your net value is still $300k, with $1.1M in stock, -$800k in options, and $0 in cash. Excess liquidity is the same as before. You no longer have to pay IB's margin rates to borrow cash. This is what the OP meant by financing positions using box spreads.
 
elt894 said:
Selling a box does not increase excess liquidity. The OP was not saying that it did. He was using it to increase cash, so that instead of paying IB's margin rates he is paying a (hopefully) lower rate to the purchaser of the box. No one is saying it gives them unlimited liquidity. It just changes whether they pay interest to IB or the market.

Along the lines of your example, suppose your PM account has a net value of $300k, with $1.1M in stock and -$800k in cash. You sell $800k in box spreads. Now your net value is still $300k, with $1.1M in stock, -$800k in options, and $0 in cash. Excess liquidity is the same as before. You no longer have to pay IB's margin rates to borrow cash. This is what the OP meant by financing positions using box spreads.
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Yes that's how I understand it as well
 
312 said:
I use IBKR with portfolio margin. Go to the "Account Window" in the menu "Account" on TWS. Find the "Market Value -- Real FX Balance" section.

Assume you're short 800k USD: "Total Cash" column is USD -800k. So, IBKR is financing you that at ~275bps, which you pay IBKR as interest. From what I understand from reading this thread, after selling 800k worth of boxes in this scenario, "Total Cash" would go from -800k to zero from the proceeds of the boxes. Thus you would no longer pay funding to IBKR on that cash, however your excess liquidity and all other margin figures would more or less stay the same.

Is this accurate?
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Exactly.
 
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Thank you for the responses.

Sorry but I don't understand you. You say if I have -800 k cash in my account and I sell 800 k in boxes my cash will go to 0. Of course.
But what happen if I have 300 k cash and I sell 800 k in boxes ? My cash will go to 1.1 milion and the margin for the boxes will be 5,000, very low.
That is what I want to know.

I am not talking about Liquidation Net value.

So now I have 1.1 m cash in my account and a margin of 5,000

Unless someone sates the oposite, the cash from short boxes are part of the Equity with loan, or not? maybe here is where I misunderstand.
and Excess liquidity = ELV - Margin.

I have open a ticket in IB to ask if Equity with loan is different in a rules based account than in a risk based account. That is important.

thanks
 
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