Long Box

The Long Box is a complex strategy that can (in some jurisdictions) have beneficial effects for tax planning from year to year.
If your incentive for this strategy is a tax play, you should consult with your tax advisor beforehand to evaluate whether or not it is valid where you live.
The strategy involves creating a lower strike Long Synthetic Future and countering it with a higher strike Short Synthetic Future.
The long and short positions cancel each other out, and we’re left with a straight horizontal line.
The trick is to ensure that the sum of our net purchases is less than the sum of our net sales in order to make a profit.
Remember, there are four legs in this strategy, two longs and two shorts, and the strategy is typically a net debit because we’re buying ITM options and selling OTM options.
High volatility is good for the Long Box, particularly if we’re looking to conduct the type of trade outlined previously, where we leg in and out.
Ideally, we want a big fall followed by a big rise, or vice versa, and we leg out in accordance with our original motivation for doing the trade in the first place.
Sell one lower strike (OTM) put.
Buy same strike (ITM) call.
Buy one higher strike (ITM) put.
Sell same strike OTM call.

Steps In

Identify clear areas of support and resistance that the stock, being volatile enough, will fluctuate between.

Steps Out

Manage your position according to the rules defined in your Trading Plan.
Remember that the Long Box is a combination of other strategies, so it can be unraveled in two-leg chunks.
You can unravel the position as parts of the trade become profitable or lossmaking.
Never hold the long options into the last month before expiration.
Remember to include all the commissions in your calculations.

Outlook

With long boxes, your outlook is direction neutral. You expect a lot of movement in the stock price, preferably between definable areas of support and resistance.

Rationale

With long boxes, you are looking to execute a form of arbitrage where the profit is assured, known, and unaffected by market moves.
You are volatility neutral per se, but there can be potential tax advantages to legging out of the loss-making side first. Professional advice is a must here.
If you examine what you’ve done here, you have simply combined a Long Synthetic Future with a Short Synthetic Future at a higher strike.
These two combined effectively cancel each other out, and the idea is to capture a profit due to mispricing in the market.

Net Position

This is typically a net debit trade because we’re buying ITM options and selling OTM options.
Your maximum risk is the net debit or net credit less the difference between the strikes.
Your maximum reward is the same.
With this trade, you can only have one or the other.

Effect of Time Decay

Time decay is generally helpful because you take your maximum profits at expiration.

Appropriate Time Period to Trade

Exiting the Position

With this strategy, you can simply unravel the spread by buying back the options you sold and selling the options you bought in the first place.
Advanced traders may leg up and down or only partially unravel the spread as the underlying asset fluctuates up and down.
In this way, the trader will be taking smaller incremental profits before the expiration of the trade.

Mitigating a Loss

Unravel the trade as described previously.
Advanced traders may choose to only partially unravel the spread leg -by-leg and create alternative risk profiles.

Advantages

Can be used as a tax hedge if entered and exited correctly either side of a tax year.
Should be placed in such a way to be virtually risk-free, although as a tax hedge, you’d need to leg out in stages.
Can be used to create an arbitrage opportunity.

Disadvantages

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