Box Spreads

RichieE · Oct 31, 2007

Hi,

Does anyone have any more information on 'Box Spreads' as a strategy? Yes, I know that it's a bull and bear spread with identical expiry dates. However, does anyone have more background information on the types of market it tends to work well in and the situations where one would use them?

RichieE

DC STOXX · Nov 6, 2007

RichieE said:
Hi,
I know that it's a bull and bear spread with identical expiry dates

RichieE

I dont know what you mean by that, how can a spread have a identical expiry dates?

I dont know a lot about box but i will tell you what i do know, they are often used in the STIRS, spread across 4 months ratio 1:3:3:1

Im not 100% sure but i dont think the months have to be adjacent but i think the gap between has to be the same..some people in my office do them, do it for size because they are not 5 min trades

Profitaker · Nov 6, 2007

All you can expect from a box spread (synthetically long and synthetically short) is the interest rate, less commission. Sometimes it can be useful to "lock" a position, but as far as a stand-alone strategy goes.....forget it.

RichieE · Dec 2, 2007

black-star said:
I dont know what you mean by that, how can a spread have a identical expiry dates?

I dont know a lot about box but i will tell you what i do know, they are often used in the STIRS, spread across 4 months ratio 1:3:3:1

Im not 100% sure but i dont think the months have to be adjacent but i think the gap between has to be the same..some people in my office do them, do it for size because they are not 5 min trades

Blackstar, sorry - I should have clarified. That definition of 'identifcal expiry dates relates to the underlying options used to make the bull spread and bear spread. (Whereas I want to know more about box-spreads as related to FUTURES. Apologies for the confusion.

Lucky_81 · Dec 5, 2007

Hi,

The 1:3:3:1 strategy you mention is not a box but is actually a futures combo which is basically long and short 2 butterfly's.

i.e. long the dec7/mar8/jun8 fly and short the mar8/jun8/sep8 fly. if you were just long the first fly your position would look like +1:-2:+1 then short the latter fly -1:+2:-1 then added your position together you would have the following

Net
dec7 +1 +1
mar8 -2 -1 -3
jun8 +1 +2 +3
sep8 -1 -1

I'm not 100% sure what a box spread is but i believe it is selling (or buying) one spread in one market and buying (or selling) the same spread in another. i.e. buy mar8/mar9 euribor sell mar8/mar9 Eurodollar. Like I say i'm not 100% sure on this so I wait to be corrected

RichieE · Dec 6, 2007

I asked one of the others today about the box. It is effectively a spread strategy used in the Euribor Futures Market.

Here is the interpretation I was given...

Contract Z7 H8 M8 U8
Buy/Sell +1 -3 +3 -1

You would choose to trade the 'wings' (+1/-1) or the 'body' (+3/-3) of the 'Box' first and then complete the other side. The idea is that you will earn a fat tick from the trade.

E.g. If the H8M8 can be traded for +2 ticks you will end up +6. If the Z7U8 can be traded for -5 ticks you will have made 1 tick.

To me this seems like a convoluted strategy - especially considering that you will probably end up paying a huge amount of commission on those 8 contracts that you have to trade.

DC STOXX · Dec 6, 2007

RichieE said:
I asked one of the others today about the box. It is effectively a spread strategy used in the Euribor Futures Market.

Here is the interpretation I was given...

Contract Z7 H8 M8 U8
Buy/Sell +1 -3 +3 -1

You would choose to trade the 'wings' (+1/-1) or the 'body' (+3/-3) of the 'Box' first and then complete the other side. The idea is that you will earn a fat tick from the trade.

E.g. If the H8M8 can be traded for +2 ticks you will end up +6. If the Z7U8 can be traded for -5 ticks you will have made 1 tick.

To me this seems like a convoluted strategy - especially considering that you will probably end up paying a huge amount of commission on those 8 contracts that you have to trade.

what he said...is how i tried to explain it, the 1:3:3:1
Commissions mean u best be runnin that shiz for more than a fat tick and with some SIZE....

Lucky_81 · Dec 7, 2007

like i said, if you break the position down it is actually 2 fly's one long or short and the next fly the opposite.

It is an expensive strategy to actaully put on but is quite range bound. i've been trading euribor futures for 4 years and use this strategy quite a bit. due to the costs involved with putting it on, i do not look for a fat tick but at least 2 or more.

If you look at front h8/m8/u8/z8 eur this has been trading nicely buying -2 and selling +4's and taking money somewhere in the middle.

Dowking · Jan 22, 2008

Do these boxes (or fly spreads) work in the crude oil market? Just an idea - anyone looked at these, or trading these?

davedavethetrader · Jul 4, 2008

the crude works better with a straight fly, every now and then they blow out. jump in, shut your eyes and ride it home! generally comes back.......a bit......

just have both individual spreads up and make sure one is blowing out on its own and moving the price, (sometimes) signals a large order, sit on your hands and then when its really streching, put it on and wait. and hope!!! the downside is a fundamental risk, pipe lines, storage etc. affecting one month far greater, if your unlucky enought to run into this, be quick to bale out !

good luck, let me know how you do!!!

generalpirata · Sep 6, 2008

any strategy for currency fx futures?

red army · Sep 7, 2008

Lucky_81 said:
like i said, if you break the position down it is actually 2 fly's one long or short and the next fly the opposite.

It is an expensive strategy to actaully put on but is quite range bound. i've been trading euribor futures for 4 years and use this strategy quite a bit. due to the costs involved with putting it on, i do not look for a fat tick but at least 2 or more.

If you look at front h8/m8/u8/z8 eur this has been trading nicely buying -2 and selling +4's and taking money somewhere in the middle.

With all the volatility at the moment and the movement in the fly's are you still trading the above strategy's???

Lucky_81 · Sep 7, 2008

Red Army,

Yes I am still trading boxes. Like you say there is massive volatility in the flys at the moment so you just have to extra careful but there is still some reasonable opportunities out there. The problem with boxes at the moment is that they are all testing and breaking the extremes - you have to take your money when you can!

red army · Sep 8, 2008

Lucky_81 said:
Red Army,

Yes I am still trading boxes. Like you say there is massive volatility in the flys at the moment so you just have to extra careful but there is still some reasonable opportunities out there. The problem with boxes at the moment is that they are all testing and breaking the extremes - you have to take your money when you can!

agreed, i think thursday pm the front june box was trading -13s against 9s in red sep!! never seen that, it popped back but its tough to run anything as it my swing the other way.

Lucky_81 · Sep 9, 2008

agreed also - looking at that box myself as well as dec8 & mar9 boxes. All test & break levels then come back. I think you have to think of the price you want then put it on a tick or two better then run it back.

red army · Sep 9, 2008

Lucky_81 said:
agreed also - looking at that box myself as well as dec8 & mar9 boxes. All test & break levels then come back. I think you have to think of the price you want then put it on a tick or two better then run it back.

there were opportunities to get the dec08 box on at par as a short, couldn't put enough on........

Lucky_81 · Sep 9, 2008

was doing same myself, put par's on then +2 yest.

Lucky_81 · Sep 10, 2008

can do as many as you like this morning. Short some myself!

red army · Sep 10, 2008

Lucky_81 said:
can do as many as you like this morning. Short some myself!

yep i shorted a few -30s with a view of the -5s in the fly but took -30.5!!!! never looked back after that, lucky out. I was gonna load up at 0.5's but got involved somewhere else. When i left i think it was -1s??? maybe -1.5???

Lucky_81 · Sep 11, 2008

Thats what i did in the am - sold -30's, double long 25,s worked 19.5's for 0.5 but paid 20. Had to leg my way out after seeing it go +1 bid!!

Can do much better than par again today.

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