Since they don't pay much interest on cash balances and I don't use 4:1 margin, I am thinking of just getting my overnight cash balance to zero by purchasing SHY. Does anyone have any thoughts on this or suggestions as to more suitable instruments than SHY? I know praetorian2 parks his money in THV, but I was thinking something a little less, how should I put this, speculative. I used to lock in at least some interest through neutral options positions, but SHY might be a little more lucrative with a small enough increase in risk.
That's what I was wondering, too. But then again, he "only" has a few hundred thousand bucks to park, as I understand it. The thing is, you can just keep holding 100% of your account equity in a stock, and then borrow against that so that effectively you get 3:1 margin for trading. That means, praetorian2 buys a few thousand shares of THV every few weeks, thusly accumulating a huge position in it over time. He is young, and if his THV trade comes home, he will be able to retire. I can understand his position. However, I was looking for a reasonably predictable way to earn some sort of interest on the balance in an IB universal account, and in my small world, SHY seems like the best way to do it. Unless someone has a more creative idea... ???
Heh- I just noticed you here so I'll respond a bit. I don't know if SHY is in your best interest. Your interest income will still be meager. You will probably pay more on a daily basis in slippage/commissions than you'll make on interest. As per THV, if you guys all rush in at once....... I only bought 500 this week. If you look at it, I think it's pretty safe still. I'm really slowing down there. I have bought some other things lately instead, (25k of ddn for instance). These are all long term holds though. I don't intend to be moving in and out at any point in the near future. Ib lets me leverage against them though, so I get the best of both worlds, almost no margin interest (few overnights on leverage) and I get a few hundred percent appreciation annually on my longs. -BTW: Take note that the CEO bought another 20k shares this month. If the ceo is buying, then I don't think that it's a bad idea for myself to buy a few more either.
I've been buying a few k a week just like lobster said. I personally have 130k now, and I've been able to purchase about another 50k for various friends/family who have also gone over my calculations and agree that I'm right.
You have said it yourself, if I buy SHY there will be no need to move in and out of it, since IB will allow me to leverage against it. And the 2% or 3% that SHY might provide still beats the 0% IB would pay on $10,000 in cash. The reason why I am thinking about SHY now is that until last week I held "long term investments" like BAC, PFE, MCD, MO, DD, PEP, GM. But now that they have gone up such a lot so fast I had to take my profits, and right now I only have EK remaining, plus a new position in CPB, and somehow I have the feeling I will have to part with these two next week now that the normal risk of a significant downturn has returned to the market.
That's what I am concerned about. Would anyone happen to have a quantitative idea of how changes in interest rates would affect SHY?
Rates go up and SHY drops fast. Rates go down, SHY goes up a bit. I would personally rather be short SHY for a long term play. I wouldn't mind paying 4% a year if I thinkt hat SHY could drop 25% in the next year. A 1% rise in interest rates to 5% is a 25% move in rates and would equate to a 10-25% drop in SHY I believe. Don't hold me to those numbers.