box spreads

Discussion in 'Options' started by xenolith, Feb 27, 2007.

  1. just imagine for a second you were the put buyer. now what would you do? there you go.
     
    #11     Jan 27, 2008
  2. stevenao

    stevenao

    #12     Jan 27, 2008
  3. stevenao

    stevenao

    Looking at TWS platform from IB, there is a Box Spread combo composer there. Now, I really wonder why they have that combo. I want to find out if it is possible to make a profit doing box spreads with them. They do have low commission fees and current interest is low.
     
    #13     Jan 27, 2008
  4. MTE

    MTE

    No, it's not possible to make money with boxes as they are arbitrage positions and as a retail trader you won't be able to do that - too slow and the costs are too high.

    With a box spread you are essentially lending to or borrowing money from the market.
     
    #14     Jan 27, 2008
  5. stevenao

    stevenao

    I got the idea now. It needs to be done on European style options. However, the arbitrage is usually very little. It is almost impossible to capture it without reasonable fast eyes and hands.

    :D
     
    #15     Jan 28, 2008
  6. MTE

    MTE

    Box can be done on american style as well. The early exercise is an issue with ITM options not OTM!

    It's not almost impossible to caputre, it is impossible to capture cause by the time it gets to your retail platform it is already too late, let alone seeing and acting on it!
     
    #16     Jan 28, 2008
  7. MTE has wrapped it up correctly. Doing a box, if you can get it on for fair value ( fair value in this case is no mystery ) is simply lending or borrowing money from the market.
     
    #17     Jan 28, 2008
  8. Is it really borrowing though because most brokers will not let you have access to the net credit received and it will be locked up with margin. So if you do it you are not really "borrowing", just making your broker money...
     
    #18     Jan 28, 2008
  9. You're doing both in reality. Some bigger firms will sell the BOX to raise short term capital in a big jam.
     
    #19     Jan 28, 2008
  10. MTE

    MTE

    Well, my comment wasn't really meant for the retail trader, who can't use the box in this way, but in general for the big guys who can and do use it this way.
     
    #20     Jan 28, 2008