Selling SPX box for financing

[312]

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

You can't use the proceeds from the box to trade other positions and it does not increase your equity. It's restricted cash. The only use for this is if you have negative cash before selling the box. You will be allowed to lever up roughly to the same amount of total assets as before, but instead of doing so through IBKR's funding, you're doing it through the implied rate of the boxes. In fact, if you're not short cash, you lose money through selling boxes cause the implied rate that you pay will likely be higher than what you receive on cash from IBKR. The only use for this is to save on funding costs.

Read Natenberg's section on Boxes. He cites them as a way for a market maker to raise short-term funding: http://terredegaia.free.fr/ppics/Trading/Mcgraw-Hill - Option Pricing And Volatility - Advanced Strategies And Trading Techniques - Sheldon Natenberg - (1994).pdf

 

[tradegoodstocks]

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.

Sorry for reviving an old thread, but can someone please educate me how to see the COB (complex order book) of SPX options? I heard that they ceased to display it on their web site some time ago, but is there any other way to view the COB, paid or not? Thanks in advance!

 

[FSU]

Sorry for reviving an old thread, but can someone please educate me how to see the COB (complex order book) of SPX options? I heard that they ceased to display it on their web site some time ago, but is there any other way to view the COB, paid or not? Thanks in advance!

It is much more difficult for a retail trader to see the COB now that the CBOE stopped displaying it on the WEB. You will need software that displays it and most of this is geared more to professional traders. I see it through WEX Trading Platform - WEX (tradewex.com) . Maybe others will know of other software that displays it.

If you are interested in the COB to view SPX boxes, you can simply watch SPX time and sales for prices they are trading at.

 

[tradegoodstocks]

It is much more difficult for a retail trader to see the COB now that the CBOE stopped displaying it on the WEB. You will need software that displays it and most of this is geared more to professional traders. I see it through WEX Trading Platform - WEX (tradewex.com) . Maybe others will know of other software that displays it.

If you are interested in the COB to view SPX boxes, you can simply watch SPX time and sales for prices they are trading at.

Thanks. But there must be an underlying data feed with an associated cost that CBOE sells the data feed for, independent of the software that displays it, just like for all the other real time data that exchanges offer, or not? Since the COB for exchange-traded combination orders is separate from the "regular" options order book for individual legs, the data feed must be separate, right? I know the legs of a combination order, once filled, get assigned individual execution prices; but the bid or ask for an exchange-traded combination order cannot be derived from the bid/ask of individual legs, correct?

Also, even if I were to reverse-engineer complex orders like boxes from the times and sales data of filled orders, granted I could guess at what spread from the mid price or the mark price I would likely get filled by a market maker, but (because of the large number of combinations of strike price / expirations) I still wouldn't be able to monitor the COB for standing limit orders and fill them myself, correct? What is the most affordable way of seeing the COB? Is there ANY broker that displays it, for a fee or not?

 

[FSU]

You can contact the CBOE at marketservices@cboe.com and ask them about this data. You could also contact their Liv Vol services as well and see if they offer it through any of their products.
Stock Options Analysis & Options Trading Strategy Tools | Cboe LiveVol

You really don't need to see the COB for information on where boxes are trading. They are very easy to see in time and sales. If you see 4 trades at exactly the same time with the 1000 strike and the 6000 strikes, you know it is a box. I see these trading all day long. It is easy to then see what the implied interest rate it is trading for and you can put in a similar box, or another one with the same dates and the same or close implied rate.

 

[tradegoodstocks]

You can contact the CBOE at marketservices@cboe.com and ask them about this data. You could also contact their Liv Vol services as well and see if they offer it through any of their products.
Stock Options Analysis & Options Trading Strategy Tools | Cboe LiveVol

You really don't need to see the COB for information on where boxes are trading. They are very easy to see in time and sales. If you see 4 trades at exactly the same time with the 1000 strike and the 6000 strikes, you know it is a box. I see these trading all day long. It is easy to then see what the implied interest rate it is trading for and you can put in a similar box, or another one with the same dates and the same or close implied rate.

Thank you FSU. I understand I can reverse-engineer boxes from the times and sales. But I want to trade against resting box limit orders. I think we agree that I would need to see the COB for that, right?

I believe that there is a huge interest rate spread between the bid and ask of customer SPX box orders that the market makers' robots fill based on their algo, in the order of at least 0.5% if you convert the box fills to rate differentials: Example: I typically get filled at ca. 0.5% (ca. 0.4% above LIBOR) when selling boxes expiring between 1 month and 2 years from now. On the other hand when I try to buy a box with spare cash (or buy back my own box), I'm unable to get filled anywhere above 0% in the current interest rate environment. That tells me that the interest rate spread (the difference between the implied interest rates when buying vs. selling the same box, converted to an interest rate differential) is at least 0.5%. For larger amounts and when financing consistently through SPX box spreads, it would be worthwhile eliminating that spread by trading against resting box limit orders. I have some flexibility regarding strike prices (obviously for boxes, only the difference between the strike prices of the box matters) and expiration dates, so it would be cool if I could view the combination order book and trade against suitable box spreads.

I hope you see what I'm envisioning: I wish to eliminate the middle man, which if I'm not mistaken purely hinges on being able to view the order book.

 

[newwurldmn]

Thank you FSU. I understand I can reverse-engineer boxes from the times and sales. But I want to trade against resting box limit orders. I think we agree that I would need to see the COB for that, right?

I believe that there is a huge interest rate spread between the bid and ask of customer SPX box orders that the market makers' robots fill based on their algo, in the order of at least 0.5% if you convert the box fills to rate differentials: Example: I typically get filled at ca. 0.5% (ca. 0.4% above LIBOR) when selling boxes expiring between 1 month and 2 years from now. On the other hand when I try to buy a box with spare cash (or buy back my own box), I'm unable to get filled anywhere above 0% in the current interest rate environment. That tells me that the interest rate spread (the difference between the implied interest rates when buying vs. selling the same box, converted to an interest rate differential) is at least 0.5%. For larger amounts and when financing consistently through SPX box spreads, it would be worthwhile eliminating that spread by trading against resting box limit orders. I have some flexibility regarding strike prices (obviously for boxes, only the difference between the strike prices of the box matters) and expiration dates, so it would be cool if I could view the combination order book and trade against suitable box spreads.

I hope you see what I'm envisioning: I wish to eliminate the middle man, which if I'm not mistaken purely hinges on being able to view the order book.

why? If you finance at anything over libor you can’t buy the box and if you are a seller of the box the spread in the market will be like 2 points. And you can only trade one leg. There are much easier ways to earn 50bps.

 

[FSU]

Thank you FSU. I understand I can reverse-engineer boxes from the times and sales. But I want to trade against resting box limit orders. I think we agree that I would need to see the COB for that, right?

I believe that there is a huge interest rate spread between the bid and ask of customer SPX box orders that the market makers' robots fill based on their algo, in the order of at least 0.5% if you convert the box fills to rate differentials: Example: I typically get filled at ca. 0.5% (ca. 0.4% above LIBOR) when selling boxes expiring between 1 month and 2 years from now. On the other hand when I try to buy a box with spare cash (or buy back my own box), I'm unable to get filled anywhere above 0% in the current interest rate environment. That tells me that the interest rate spread (the difference between the implied interest rates when buying vs. selling the same box, converted to an interest rate differential) is at least 0.5%. For larger amounts and when financing consistently through SPX box spreads, it would be worthwhile eliminating that spread by trading against resting box limit orders. I have some flexibility regarding strike prices (obviously for boxes, only the difference between the strike prices of the box matters) and expiration dates, so it would be cool if I could view the combination order book and trade against suitable box spreads.

I hope you see what I'm envisioning: I wish to eliminate the middle man, which if I'm not mistaken purely hinges on being able to view the order book.

I don't think it would be helpful for you to see resting box orders. They are resting for a reason, not a good price. The bid/ask on these boxes are really quite tight. Just look to what is trading.

 

[tradegoodstocks]

I don't think it would be helpful for you to see resting box orders. They are resting for a reason, not a good price. The bid/ask on these boxes are really quite tight. Just look to what is trading.

I respectfully disagree. Let's make an example. For simplicity, let's use implied interest rates instead of price quotations. I don't know what the interest rate spread is, but assume it's 0.6%, i.e. all sell orders of a box higher than 0.5% implied interest, and all buy orders at implied interest lower than -0.1%, are swept by the market maker's bots (I think CBOE performs a COA complex order auction), while any order with an implied interest rate between -0.1% and 0.5% does not get picked up by the bots. Then my sell the box order at, for example, 0.2% implied interest would be very attractive to a buyer who needs to park some cash, and for example a +0.2% implied interest buy order of someone else who needs to park some cash for a while would be very attractive to me, as I could refinance at 0.2% instead of 0.5%. However, neither my 0.2% sell the box order nor the 0.2% resting buy the box order can be seen by interested market participants who can't view the COB, and because of the fragmented market with many strike prices and expiration dates it's unlikely that the box orders get "crossed"; therefore both the 0.2% implied interest buy order and the 0.2% sell order will likely never get filled.

Frankly, I have been doing the same thing with (less liquid) stocks and ETFs all the time for years with success. I place limit orders between the bid/ask spread that are often filled by market orders or crossing limit orders of (presumably) other retail and institutional traders, which improves my average execution quality and lowers my trading (friction) cost. Obviously I can only do it if I see the actual order book. Why shouldn't I do the same thing with SPX boxes?

"The bid/ask on these boxes are really quite tight." - I tested buy and sell the box orders on the same boxes, and discovered that the spread of implied rates between buy-the-box and sell-the-box fills that can actually be achieved is at least 0.5%, putting a near risk-free 0.5% p.a. (or more) for each box spread into the pockets of market makers. I wouldn't call that particularly tight.

 

[newwurldmn]

I respectfully disagree. Let's make an example. For simplicity, let's use implied interest rates instead of price quotations. I don't know what the interest rate spread is, but assume it's 0.6%, i.e. all sell orders of a box higher than 0.5% implied interest, and all buy orders at implied interest lower than -0.1%, are swept by the market maker's bots (I think CBOE performs a COA complex order auction), while any order with an implied interest rate between -0.1% and 0.5% does not get picked up by the bots. Then my sell the box order at, for example, 0.2% implied interest would be very attractive to a buyer who needs to park some cash, and for example a +0.2% implied interest buy order of someone else who needs to park some cash for a while would be very attractive to me, as I could refinance at 0.2% instead of 0.5%. However, neither my 0.2% sell the box order nor the 0.2% resting buy the box order can be seen by interested market participants who can't view the COB, and because of the fragmented market with many strike prices and expiration dates it's unlikely that the box orders get "crossed"; therefore both the 0.2% implied interest buy order and the 0.2% sell order will likely never get filled.

Frankly, I have been doing the same thing with (less liquid) stocks and ETFs all the time for years with success. I place limit orders between the bid/ask spread that are often filled by market orders or crossing limit orders of (presumably) other retail and institutional traders, which improves my average execution quality and lowers my trading (friction) cost. Obviously I can only do it if I see the actual order book. Why shouldn't I do the same thing with SPX boxes?

"The bid/ask on these boxes are really quite tight." - I tested buy and sell the box orders on the same boxes, and discovered that the spread of implied rates between buy-the-box and sell-the-box fills that can actually be achieved is at least 0.5%, putting a near risk-free 0.5% p.a. (or more) for each box spread into the pockets of market makers. I wouldn't call that particularly tight.

Unless you are at a bank, you can’t lever this position. So why are you bothering trying to earn 20bps and be locked in for several months? (You will pay your 50bps bid offer if you have to get out).