Something odd here. I created some manual EFP lines for AMD and KCI. Looks like IB is quoting their internal EFP price and not the actual spread on those. Thats not what I saw on AAPL yesterday. Could be they treat each expiration differently?
IB's EFP spreads are usually roughly the same, if measured in terms of annualized interest rates. This means that spreads generally increase in proportion to the stock's price, and generally increase in proportion to the time remaining until expiration of the EFP. The December EFP for AAPL has one of the largest spreads because AAPL is one of the highest priced stocks, and because the December expiry is the longest term EFP offered.
I just checked my PM for the first time in a long time, and found the following message, from an individual who will remain nameless. I am posting it, along with my response, in case the info might be helpful to others. You can get better deals from slightly out of whack prices, by monitoring the market scanners for EFPs. The amount of this extra benefit, at least on a small account, would probably not be enough to make it worth the amount of time you would spend eyeballing the scanner. It might be a little more worthwhile if you only glance at the scanner occasionally, while performing some other more productive task, so that you are not losing time on the task of monitoring EFPs. I wonder if QuoteTracker will chart EFPs - if it will, then building some intraday charts might also help to get better EFP pricing. I haven't tried this. Sometimes, you will see what appear to be screaming huge bargains, but these are usually due to erroneous or outdated dividend information in IB's data base, which throws off the interest rate calculations. You can address this problem by using the Edit Dividends feature. I wrote about this in a previous post, but I don't remember for sure if it was in this thread. I haven't used the API to monitor EFPs. I think somebody who wanted to do so could program an API to help with the task of monitoring EFPs, so as to get better deals on them. I'm still using TWS 874.4, but it is my understanding that 875 has a better EFP market scanner. Perhaps an improved scanner will make it more efficient and easier and worthwhile to monitor for better EFP pricing.
Re: this business of paying margin interest due to mark to market on the futures if the stock rises. Not quite sure if thats true, but assuming it is, what are the implications for IRA accounts??? If you maxed out the cash, would you have a problem in that case, since there is no margin?
Is mark to market why my cash balance went negative after my KCI stock leg of the EFP spiked higher. Would I actually pay margin interest on that money if I kept a negative balance.
I'm having trouble conceptualizing how I could figure out how to get a negative debit balance back to exactly zero, wouldn't I be using a margin loan to buy the extra EFP? Thanks. Mark
I believe so. I believe you will make the market rate of interest, but you will also pay IB's margin rate, so that you will pay a net annualized interest rate of roughly 1.5% on the amount of any margin debt extended to you by IB. You would solve the problem by re-adjusting, by trading out of some EFPs and into others, so that your account will carry no margin debt. You shouldn't do this until the excess margin interest you expect to pay becomes big enough to cover the commission and spread costs you will incur as a result of the adjustments. If, for example, your EFP expires in one month, your negative settled cash would have to be about $857, on the average day, before the net margin interest you paid would amount even to just one dollar. Note that if you enter an EFP, and then the stock soars, as in the case of KCI, the spread between the SSF and the stock widens, and you suffer a temporary loss on the position. This entire premium, including temporary loss, will decay to zero by expiry. The fact that in addition to this temporary loss, you may have to pay margin interest, when the stocks in your EFPs soar in value, means that volatile stocks are not the best candidates for an EFP designed to earn interest on unused cash. The risk that this will occur is more than counterbalanced by the possibility that a stock will plummet rapidly after you establish your EFP. If this happens, then you will experience a sudden drop in the amount of the SSF premium, which means an immediate gain to you. It also means that you will now have additional free cash you can put to work in another EFP earning additinoal interest, because that cash is no longer needed to margin the stock position since it has declined in value. Yes, the risk of a stock soaring does exist, but the risks are very small, and in the long run, they are more than outweighed by the possible gain of a stock plummeting. Recall that stocks decline less often than they rise, but that this is counterbalanced by the fact that stocks fall more rapidly than they rise. If your stocks decline in value, then adjusting by adding new EFP positions is needed so that you can reduce your positive settled cash balance to zero, thereby making sure that all of your free cash is put to work earning interest. If your positive settled cash balance is an average of $250, on the average day, you will be missing out on about $1 of interest per month, assuming current EFP interest rates of about 5.35%. So again, you don't want to readjust EFPs too often; you want to adjust only when the interest you expect to gain as a result of the adjustment will outweigh the commision and spread costs incurred by making the adjustment. You need to know how to manage these fluctutations correctly, if you want to obtain maximum benefit from EFPs; but these fluctuation issues are not big enough to detract from the increased return of EFPs.
This might be a problem. You need to consult with a tax professional who is actually knowledgeable about trading. This requirement rules out most tax professionals.
You would buy back one of your EFPs, effectively "covering" or removing it from your account. You will pay commissions and the bid-asked spread in order to do this. You would then replace your EFP by selling a new EFP position to replace the old one. The new one will involve a stock leg having less value than the old position, so that the total value of EFP stock legs in your account will not exceed the amount of settled cash in your account. If you do this, the amount of margin interest you pay will be either zero, or close to it, until and unless you experience another drastic increase in the value of your EFP stocks occuring prior to expiry.