<aside> ℹ️
What this is
A synthetic loan structured as a 4-leg options trade. Under Portfolio Margin, it's the cheapest financing retail investors can access. Pre-tax rate beats broker margin by ~130 bps. After-tax rate beats it by 200–300 bps for high-bracket investors. This is the operational playbook.
</aside>
A box spread is: sell high-strike put + sell low-strike call + buy low-strike put + buy high-strike call, all same expiry. Terminal payoff is exactly the width of the strikes, regardless of where the underlying lands.
Selling the box = issuing a zero-coupon bond. You receive cash today, pay the width at expiry.
Always trade on SPX (or XSP for smaller sizes). Reasons:
Always execute as a combo order. Never leg in.
At 96% of width: ~4.17% annualized borrowing rate. Compare to IBKR margin loan at BM + 1.5% (~5.5%).
| Scale | Face value | Cash received (96%) | Owed at expiry | Interest cost | Small | $50K | $48,000 | $50,000 | $2,000 |
|---|---|---|---|---|---|---|---|---|---|
| Medium | $100K | $96,000 | $100,000 | $4,000 | Large | $500K | $480,000 | $500,000 | $20,000 |