Deep-In-The-Money Iron Condor?

Discussion in 'Options' started by OptionOriented, Nov 4, 2009.

  1. SPX (June 2011)
    500-600 Call Spread (short, collect prem)
    1,500- 1,400 Put Spread (short, collect prem)

    Bid 185.70
    Mid 195.65
    Ask 205.60

    Assuming both legs end up ITM. At the Mid, represents interest of 3.53% for the 227 days to expiry. Way too high, a box spread would be much better. (Recently entered a Dec-11 box at <1.4% APR - beats paying margin interest!)

    Odd thing about the DITM IC is my broker only requires 10k as collateral! Theoretically, one could pocket the ~9.5k (margin) and invest (~19k) in some stock - MLPs?! Take in dividends (5-7.5%) and actually end up with more than the 20k to cover the SPX position.

    One could go further OTM on one leg, or both legs to get more $$. Depending upon whether one felt comfortable making a directional bet. (i.e. very DITM call side, and OTM slightly on the put side, still could collect 25-40% excess premium waging the market goes up from here.)
     
  2. Suppose the question is whether other brokers handle this trade similarly? I would think the broker would charge 20k in maintenance margin, not 10k. I know that OptionHouse charges the full 20k.
     
  3. What will happen to all of your numbers if you can't tranasct anywhere near the midpoing upon exit?
     
  4. One wouldn't likely trade this setup, but rather hold to expiration. Like the box spread it's a financing / interest rate play.
     
  5. ptrjon

    ptrjon

    You'd be sacrificing liquidity, increasing leverage, for a relatively small gain. I don't like IC's in general, just because I prefer not to be on both sides of the market- I'd rather just do an ITM covered call in this situation.
     
  6. MTE

    MTE

    This trade is nothing like the box spread. Box spread is an arb play. This trade is not an arb and, precisely because of the box spread relationship, it is nothing more than an OTM iron condor with long body and short wings (i.e. you want the index to move to the wings).
     
  7. DrvTrader

    DrvTrader

    If this is true, i.e. 10k margin, could this be an infinite loop??
    i.e. start with 10k in ur account. Take the IC, now u have 19k cash. Take a second IC, use 10k, now u have 27k cash. Do it a third time and u have 36k. Now invest this safely in an instrument which will cover ur cost of ITM expiry for the financing IC and then some! Am I missing something here or can I end up with a million dollars in my account if i keep this up!! :cool:
     
  8. I'd double check that margin requirement. Brokers are a lot of things but they're not stupid enough to let you sell geometrically.
     
  9. qwert

    qwert

    i read a post here from a guy complaining ib closed 900 or 9000 box trades or he lost $9000 in commissions by ib closing his box trades.