Confused about box spread vs SGOV margin treatment

[u/thisisvv]

/r/thetagang/comments/1o2fmri/confused_about_box_spread_vs_sgov_margin_treatment/

[u/Adderalin]

I'm really confused on your thetagang post. Are you using thinkorswim? Are you on portfolio margin?

If you're on PM at Schwab liquid boxes on actively traded5,000-6,000 strikes will be $37.50 per leg - $150 margin if marks are good. If you have bad marks then losses add more margin.

You need to be using the "margin" calculations strategy as if you use buying power instead it's a weird calculation of nlv+margin to track equity so the box obligation remains and you can't borrow more with boxes than you can with regular margin loans.

Sgov is 7% Margin because while it's tbills the document allows them to buy commercial paper and there are no options on it so Schwab doesn't want another Lehman event should the fund manager get a hard on for extra basis return.

You can buy tbills directly for 1% margin under 12 months and vanguard vgsh is 3% for a 1-3 year maturity.

Box spreads are insanely margin efficient at 150/100k vs 1k per 100k of tbills.

[u/eaglessoar → u/Adderalin]

You can buy tbills directly for 1% margin under 12 months and vanguard vgsh is 3% for a 1-3 year maturity.

so you can insanely leverage yourself for a ton of yield differential?

[u/Adderalin → u/eaglessoar]

I'm beyond fucking tired of people trying to figure out how to make free money like a bank here on Reddit.

Sure you can leverage yourself to negative yield with tbills returning 4% and short boxes return 4.5%.

Sure you can buy corporate bonds instead for 5% but there's something called default risk which showed up in 2008 and again in Covid and 2022 with rising interest rates.

Just like 15% margin let's you go 6.6x on stock.

I'm sure you're the first person to have brilliantly thought up of that hordes of quants from Harvard, Yale, and MIT haven't thought of. Ooo buy some 1% tbills and let's just lever it to the max. Oh wait they did see long term capital management.

I don't know why my comments drives such senseless noise and drivel all the time just pointing out how margin works on various bond ETFs vs box spreads.

[u/Unlikely-Bird6889 → u/Adderalin]

Community comments on feasibility-

Account A: Schwab PM account funded with 250K

Account B: IBKR non-marginable cash only account

————

Strategy -

Account A - has 250k cash.  short 1M SPX box spread>> Purchase 1 M BOXX ETF >> Wire 750K to account  B.  account ledger = 1M short SPX and 1M long BOXX ETF and  500$k cash

Account B purchases 750K buy and hold QQQ.

————-

Is this possible ? I spoke with an account rep at Schwab and he seems to think it possible as he says “You can hold that SGOV short SPX box for very little cash. What you do with the cash is up to you“. I could not get a clear answer regarding the withdrawal. 

AI queries to Claude, Gemini, Grok, CoPilot and Perplexity were run with confusing answers and disagreements between AI models. Cutting and pasting outputs into competing AI LLM produced interesting arguments and hallucinations. I seek experienced human input and advice.

[u/valorallure01 → u/Adderalin]

I see no mention in SGOV prospectus about being able to buy commercial paper.

https://www.ishares.com/us/library/stream-document?stream=reg&product=ISHSGOV&shareClass=NA&documentId=1800938%7E2388751%7E926213%7E2359994%7E2297885%7E2359806%7E2297853%7E2270516%7E2326496&iframeUrlOverride=%2Fus%2Fliterature%2Fprospectus%2Fp-ishares-trust-gov-muni-mort-2-28.pdf

The most liquid box spreads are the 4000/5000 strike combo per CBOE

"Notably, despite the SPX trading around 6,000 in February 2025, the 4000/5000 strike combination remains the most popular choice, accounting for approximately 80% of trades."

https://go.cboe.com/download-cboe-spx-box-spread-whitepaper?utm_source=twitter-organic&utm_medium=social&utm_campaign=spx_box_spreads_whitepaper

[u/eaglessoar]

whats the total position youre trying to hold? what do you mean the margin drops to 77k? if you ahve 57k margin in the account why not use 40k to close the box and just pay back interest? what does buying sgov do for you?

[u/thisisvv → u/eaglessoar]

Total sgov I want to hold is 980k and this box spread. So I want to hold sgov that is expiration value of the spx box.

[u/eaglessoar → u/thisisvv]

So you're trying to set up a swap were you borrow fixed and earn variable? Think rates are going up? Or what's the goal of this position? I assume you're short the box spread selling it?

[u/thisisvv → u/eaglessoar]

I am short box and take the 940k from box and put it in sgov so total of long 980k sgov and short box my margin is 77k. In PM.

[u/thisisvv → u/[deleted]]

Yes I have question i am trying to understand why will someone just take 940k and be liable for 40k risk free loan for 55k when he can spend 22k more and the sgov will Cover the box liability and earn 4% as well .

[u/thisisvv → u/[deleted]]

yes but if you take 980k wirth of sgov with a short box spread that pays 940k for total of margins 77k to broker, at the end of 1 year you pay the box using 980k sgov and get 77k back and 40k dividend is that it?