Are there any details to be concerned about how this settles at expiration?
For example, is the following all correct? However the market moved,
one of the short legs is assigned for you to settle with cash—possibly an enormous amount thereof!
one of the long legs is in-the-money by the same amount, minus the loan value; and exercises automatically (assuming you didn’t specify contrary instructions)
the other two legs expire worthless
your only required action is to ensure the loan value is on-hand in the account (or within margin borrowing power) at this time
I haven’t let one expire yet, but that looks right. I don’t anticipate any major problems because none of the sources I’ve seen mention any, and besides all legs expire on the same day.
Note that the loan value already has to be within margin borrowing power throughout the entire duration of the loan, since your broker takes into account the box spread as a negative-value asset when calculating margin. Box spreads can’t get you more borrowing power (it’s box spread financing, not box spread borrowing).
Are there any details to be concerned about how this settles at expiration?
For example, is the following all correct? However the market moved,
one of the short legs is assigned for you to settle with cash—possibly an enormous amount thereof!
one of the long legs is in-the-money by the same amount, minus the loan value; and exercises automatically (assuming you didn’t specify contrary instructions)
the other two legs expire worthless
your only required action is to ensure the loan value is on-hand in the account (or within margin borrowing power) at this time
Could anything possibly go wrong here?
I haven’t let one expire yet, but that looks right. I don’t anticipate any major problems because none of the sources I’ve seen mention any, and besides all legs expire on the same day.
Note that the loan value already has to be within margin borrowing power throughout the entire duration of the loan, since your broker takes into account the box spread as a negative-value asset when calculating margin. Box spreads can’t get you more borrowing power (it’s box spread financing, not box spread borrowing).