Investing - Theory, News & General • AlphaArchitect launches BOXX: 1-3 Month Box Spread ETF

Assets under management are growing crazy fast. Up to $916mm. Word is spreading fast on this ETF. The use of it for cash holdings, especially for high earners in high tax states, is very impressive.

This ETF gained another $7mm in AUM over night and is now up to $923mm AUM. My question is what size can this grow to but still allow them deploy this strategy? At some point there needs to be another party on the other side of these Box trades. Is that market for that big enough?

I think the market is quite big. You can head over to the web site boxtrades.com that a friendly bogleheads user created to monitor box trades. You will occasionally see box trades in the $100M range, if I remember right.

I've noticed the rates for 1-4 month box trades has gone down to approximately the rate of treasuries. BOXX may be to blame for the decreasing yield premium. On the flip side, you can borrow money for 1-4 months for about the same rate as the Treasury can now!

Mar 2024 SPX box trades were around 5.55% on average (range ca. 5.45% to 5.65%) for the past week. Mar 14 T-bills are at about 5.5%, although the data from Interactive Brokers is a bit hard for me to read. 1-month Term SOFR, which I think is a bit more stable than T-bills with short expirations, is about 5.33%. The current fed fund ranges is 5.25% to 5.5%.
It looks like the spread to Term SOFR is about 0.22%. In my experience and what is documented in studies, the average spread is about 0.35%, with a range between about 0.2% and 0.5% to T-bills or Term SOFR.
June 2024 SPX boxes trade currently at about 5.55%, slightly increasing from about 5.45% last week. June 13 T-bills are at about 5.3%. Term SOFR (average of 3-month and 6-month) is about 5.25%. The spread of options to T-bills and Term SOFR seems to be close to the historical average.
I didn't check for possible differences in compounding methods in the various rate calculations.

I see SPX box trades of about $100M per day the last few days, and I see multiple single trades of up to $100M during the last week. Most of the bigger trades seem to be floor trades. I don't know how BOXX submits its options orders, electronically or via negotiated floor trades.
On 12/15/2023, the last quarterly expiration, I see about $170M worth of box trades. On Monday 12/18 I see about $500M worth of box trades. I'm not sure how the big guys roll their box spreads; I usually let them expire and open a new position on the quarterly expiration dates. Possibly the big guys could spread the volume of new positions across various expirations when a position expires.
On 01/08 I see a Mar 2024 expiration box trade worth $425M.
The web site does not include SPXW options, which I think have volumes of similar order of magnitude as SPX.
Open interest of Mar 14 2024 SPX options in the range between 4000 and 7000 is up to ca. 800 for the round strike prices divisible by 100. OI is ca. 200 for 4000 and 5000 strike prices. I read somewhere that box trades are only a small fraction of the total options trading volume. But if we assume for the moment that all 200 at strike prices 4000 and 5000 are from box trades, the loan amount would be ca. 200 * $100 * 1000 = $20M. I don't know how that reconciles with the much higher box trade volumes per boxtrades.com, unless the trades don't keep their positions until expiration. Most large box trades use 4000 and 5000 strike prices. My apologies, OI at those strike prices is about 200k, which would equate to a loan amount of about 200k * $100 * 1000 = $20B for those strike prices, if the OI were from 4000-5000 box trades only (which is unlikely). That would be about 20x the current AUM of BOXX.

Statistics: Posted by fujiters — Thu Feb 01, 2024 1:01 am — Replies 154 — Views 22900