I guess technically it’s actually “expose you to gamma risk”
Yeah, that sounds right. But gammas can turn into delta as the market moves. If you do box with American options and get assigned early, the shares (or short shares) will hedge you for a while because they’ll have a similar contribution to your overall portfolio delta as the option they replaced, but it’s not going to have the same behavior as an option when the price moves. So you’d want to close and reposition before that happens, which, of course, requires capital and commissions.
Hopefully they’ll be smart enough to sell your index ETFs because that’s much more liquid?
You would think. Sometimes you get liquidated by an algorithm though. I’ve heard that Interactive Broker’s liquidation algorithms are especially aggressive, which is part of how they can offer such competitive margin loan rates. (They also have a “liquidate last” feature that lets you protect some positions from the algorithm for longer. Definitely use that for the boxes.)
The above is purely theoretically though.
Yes. I have no first-hand experience with this. I have heard things on forums from people, but I can’t call that a reliable source.
Interactive Broker’s liquidation algorithms are aggressively fast, but my rather limited experience suggests they’re pretty sensible about what to liquidate.
Yeah, that sounds right. But gammas can turn into delta as the market moves. If you do box with American options and get assigned early, the shares (or short shares) will hedge you for a while because they’ll have a similar contribution to your overall portfolio delta as the option they replaced, but it’s not going to have the same behavior as an option when the price moves. So you’d want to close and reposition before that happens, which, of course, requires capital and commissions.
You would think. Sometimes you get liquidated by an algorithm though. I’ve heard that Interactive Broker’s liquidation algorithms are especially aggressive, which is part of how they can offer such competitive margin loan rates. (They also have a “liquidate last” feature that lets you protect some positions from the algorithm for longer. Definitely use that for the boxes.)
Yes. I have no first-hand experience with this. I have heard things on forums from people, but I can’t call that a reliable source.
Interactive Broker’s liquidation algorithms are aggressively fast, but my rather limited experience suggests they’re pretty sensible about what to liquidate.