Getting interest through SPX boxes

Discussion in 'Options' started by FSU, Dec 3, 2020.

  1. FSU


    FYI, today the SPX Jan 2021 200 call and Jan 2021 5200 put strangle has been trading for around 4995. People have often asked how to get interest on the money in their trading account. So basically you are getting $500 in interest on a $499,500 investment over about a month and a half holding period.

    Not sure how margin would work in a Reg T account, but for a PM account this uses practically no margin. Note the inverse would be true as well, if you are paying high interest charges for a debit balance, you could sell this strangle.
    jtrader33 likes this.
  2. But, but, but what if spooz rally to 5300? :p
    murray t turtle likes this.
  3. FSU


    I know you're joking, but since you are buying the strangle, you are synthetically long the 5200 calls. So you would make lots of money!
  4. Yep, my point exactly - you get income and get tendies!

    PS. I am bored stiff today (unhappy bored - failed to hedge my long gamma during the dip)
  5. JSOP


    A 0.8% annual interest?! Whoopi!! There are GIC's that pay higher interest than that, absolutely guaranteed, risk-free. There are numerous risks involved with this long strangle. All these "interest" that you earn are all temporary and will give back once these risks set in. And it involves even more risks if you do a reverse strangle.
  6. FSU


    What risks are involved here? This is a cash settled index. You have the potential of a bad mark, but even that would be a relatively minor risk.

    I currently receive zero interest for credit balances, this allows you to receive interest and still have full margin availability. You are also able to "borrow money at this rate by selling the box.

    Posting this information to show what is possible and what is trading in the SPX. These type of boxes trade frequently.
    jtrader33 and guru like this.
  7. JSOP


    Volatility, theta, just 2 of the risks that come to my mind. It's a Strangle so that means it will only be profitable if the option price moves more than what you've paid for them. Even if they become ITM, you still lose the option premium that you paid for them. We are already in Dec. you think the price is going to move that much in just one month? If the prices don't move much, whatever you earned in "interest" will all be given back.

    If you have credit balance, just put them in term deposits. Or invest in some stocks. Tech stocks are going to go sky high now that 2nd wave of the covid is starting thanks to all those who traveled during Thanksgiving without masks in crowded airports and gathered (just to argue over Thanksgiving dinners) despite warnings.
  8. It will have no gamma or vega at al, unless of course we rally 5200 on SPX - unlikely even with JPow at the helm :D

    This is not an option position. The two strikes are a mile away from the money and all that you get is financing due to the fact that you are gutting it (both put and call are far ITM).
    JSOP likes this.
  9. JSOP


    You are that confident in soul-saving Joe and his politically correct Harris? What if it tanks below 200? ;)
    Last edited: Dec 4, 2020
  10. Daal


    #10     Dec 4, 2020