Selling SPX boxes for interest

Discussion in 'Options' started by FSU, Apr 3, 2018.

  1. Robert Morse

    Robert Morse Sponsor

    Not sure what you mean by that so I'll provide some details. Some institutional accounts get paid on credit balances in a type 2 margin account and all market makers do. Many retail accounts do not get paid on type 2 credit balances and if they do it is nominal. Where a retail client can benefit is if they are borrowing based on a high debit balance in a PMA that they can offset with a credit box. E.G. PMA with $500,000 in equity and a debit balance in the type 2 account of $1mm. (Borrowing $500K) If they can sell a box in SPX for more than $500K, it will reduce the debit to not borrowing. If the cost of the box including fees is less than the interest charges, and it does not cause a margin call, it will save money. A type 2 margin account contains cash from a margin account, long stock plus long and short calls. It does not contain short stock.
     
    #21     Dec 18, 2018
    GregorySG9 and newwurldmn like this.
  2. newwurldmn

    newwurldmn

    What is a type 2 account?
     
    #22     Dec 18, 2018
  3. Robert Morse

    Robert Morse Sponsor

    Type 1 CASH
    Type 2 MARGIN
    Type 3 Short Stock
     
    #23     Dec 18, 2018
  4. I think box spreads are 0 margin, but i wonder if i have net cash balance but very little margin availability/liquidity remains (not enough for a naked SPY option position), how does the broker know I intend to do a box spread at time i enter into the first leg?
     
    #24     Feb 13, 2019
  5. Robert Morse

    Robert Morse Sponsor

    Don’t leg, enter it as one spread
     
    #25     Feb 14, 2019
  6. Obviously that applies to all spread option and futures trades, so in term of margin requirement, legging in will result in debit margin, then as the whole spread completes, credit margin to the spread margin?

    So in case of nil excess margin, I need the execution software to route a preset spread trade? What if the software doesn't have any preset combo ? So any limit order for a leg won't be initially recognized as a spread?
     
    #26     Feb 14, 2019
  7. Robert Morse

    Robert Morse Sponsor

    If your software does not allow complex spread option orders with 4 legs, you need a new broker with better platforms.
     
    #27     Feb 14, 2019
  8. so i need the intended spread to be pre-configured in the order execution software in order for the clearing broker to see my whole spread trade for margin calculation? So all legs must be take-liquidity orders? is that the idea?
     
    Last edited: Feb 14, 2019
    #28     Feb 14, 2019
  9. So can anyone describe how the margin requirement evolves when legging into a spread trade? pls no this platform or that broker or shouldn't leg BS, trying to have a better idea how margin changes during the process.
     
    #29     Feb 16, 2019
  10. Robert Morse

    Robert Morse Sponsor

    You need to have the available margin for the first spread, then your platform or broker has a process for pairing off positions into spreads. assuming they pick up your spread as a box, after you have that on, they use that requirement.
     
    #30     Feb 16, 2019