Day Trading & Forex Forum

RichieE

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

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

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.

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Good judgment comes from experience. Experience comes from bad judgment.

RichieE

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.

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RichieE
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Lucky_81

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

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.

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RichieE
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DC STOXX

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

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.