Am looking to lend $300k-600k for a quarter or so, looking at some SPX box spreads. The bid-ask are too wide, so if I buy at ask, I will only get 1.2%ish (annualised) and if I were able to buy at bid I will happily get 3.5%ish. I tried bidding for 3% but it sat there the whole day collecting dust. 2% should be hit but for that I might as well leave it as cash in IBKR. How do you practically access the implied interest rate given the wide bid-ask?
Agree with @Robert Morse. 3 month T bill yielding around what a box will get you. If you do buy a box, The spread on the individual options don't really matter. They will trade of the entire spread implied interest rates. You can go here to see recent box trades for guidance of what is trading and for what price. SPX Box Spread Yields | Boxtrades.com
Would you care to share which strikes you are attempting? RE: T-Bills I do not want to speak for blueraincap, however, T-Bills are still taxed at the federal level. As such, an SPX "synthetic" would have two advantages: 1) Since it is not "ordinary income," any losses could be used to offset capital gains for a tax advantage. 2) Any gains would be taxed as a capital gain and at 60/40 (long-term/short-term) rates for a tax advantage.
That is an excellent point. I expect that after commissions, market to market changes in equity, and the difficulty finding the other side at an advantageous price, I'd still rather buy a T-bill or a Money Market fund. We offer both. The one exception is a credit box spread to reduce debit interest charges. Buying the spread, I would never do as a customer.
One more point. If you have an account with equity of say $250,000 and want to be flat to day and just want to maximize your riskless rate, and you buy close to $250,000 in a box spread discounted out 6 months. Your get your targeted return. Nice. Now, in 2 weeks or 2 months, you change your mind and want to buy some stocks. You then have to sell the box spread or incur debit interest charges. With a T-bill or money market fund, you just sell it. No work and less risk.
I was looking at a range of strikes, to suit my "notional amount", similar bid-ask sizes 1.1%ish-3.5%ish. For a non-US guy, I think I don't pay withholding tax on government-issued papers, so might as well do Treasury.
Folks, do you consider also this fact: if you keep the position till expiration, then liquidity (volume, OI etc.) does not play any role! Meaning: there are much much better options (ie. with much bigger yields) out there than such lame SPX & Co. etc.!
Sounds like a silly answer. Get a firm with a floor broker and have them sample the crowd for rates, report back and pull the trigger. You'll spend more on brokerage, but beat the pure electronic rate. SPX boxes are also quoted by a number of vendor terminals if you have access, but that is just a sense. Make sure if you're getting a comparison to a bank rate to try to negotiate the jumbo rate if possible. MMs in the crowd will quote the rate - pencil one yourself and then net out fees and brokerage. Even paying a floor broker might still result in a better rate. Fees are fees and just about every brokerage firm should be able to access a floor broker. Some will do a box for a fixed brokerage. Many won't if your firm is an infrequent user. The price of the actual options is irrelevant - unless you plan to exit early and electronically.
you’ll trade 10 cents off of mid on the box. Posted markets in SPX are very wide but it’s trades almost choice.