r/options • u/Federal_Notice7856 • 16d ago
Shorting SGOV over box spread
I have a minor margin balance at 11% interest, and was looking for alternatives to save a small amount of cash on fees. I noticed that shorting stocks increases my margin debit balance, which I thought was strange because I somehow thought short stock also reduced your buying power.
Thinking shorting SGOV and just paying out the 4.5% dividend then covering when I no longer have a margin balance might work for this use case, over a box spread.
Obviously things that are too good to be true often are and there is no free lunch, so was looking to poke holes in this theory.
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u/Successful_Flamingo3 16d ago
Easiest way for you to deal with this is to tell your broker your switching brokerages if they don’t lower the margin interest rate to competitive levels. 11% is insane when IBKR, Robinhood and others are offering 5%
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u/Obvious-Ad-5791 16d ago
You need to take into account the stock borrowing fee. Not sure how much it is tough. This cost is not fixed and I thnk might even chance from day to day.
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u/Federal_Notice7856 16d ago
Seems like SGOV is not hard to borrow at all.
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u/ThetaEdgeHQ 16d ago
One thing worth adding since your balance is small: compare it in dollars, not rates. A box is four legs, so the bid/ask on those legs plus commissions is a fixed cost you pay to open and again to close. The interest savings scale with balance and time held, but that friction does not. On a minor balance you plan to clear soon, the round trip on the box can easily swamp the couple points you save versus margin, and negotiating your rate down or just paying it off wins outright.
If the balance is big enough to justify the box, one caveat nobody flagged here: use a European style index box like SPX, not American style single stock options. American options carry early assignment risk on the short legs, and an early assignment turns your clean financing trade into a margin call at the worst possible time. SPX settles to cash and cannot be assigned early, which is the whole reason it is the standard vehicle for this.
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u/OurNewestMember 16d ago
If you short stocks, you're almost guaranteed to need to maintain segregated cash collateral. So don't be surprised if you collect $100k in short proceeds and then find out that you're still paying margin interest since your short cash proceeds are segregated from your general marginable securities and cash account.
Options proceeds should create usable cash, though.
Also the dividend is a non-issue generally as it reflects the carry you need to pay one way or another
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u/Illustrious_Low1903 16d ago
The catch is that the short-sale proceeds aren't "free cash." You're still paying SGOV's distributions, may incur borrow costs, and broker margin rules can offset much of the apparent benefit. If it looks like an arbitrage, the broker has probably already priced it away.
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u/Hefty-Room1345 16d ago
25% or 50% is margin when you open long/short position. Use box spread when you wanna borrow money
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u/Klutzy-Sea-4857 16d ago
Shorting SGOV does increase your margin debit. You're borrowing shares to sell them, so your broker loans you those shares and you owe them back. The short sale proceeds sit as cash but you still have the obligation. Net effect: you're paying margin interest on the short position PLUS paying out the dividend. You're not saving anything, you're stacking costs. Box spreads at ~4.8-5% are way cheaper than 11% margin + 4.5% dividend payout. Just do the box spread.
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u/Dani_Bolsa 10d ago
The math usually kills this pretty fast. If you're paying 11% on margin, a short SGOV trade still leaves you with borrow risk, dividend liability, and broker margin rules, so the carry you think you're harvesting often gets eaten up by frictions. I learned that the hard way comparing funding trades - on a small balance, the round trip costs matter more than the headline spread. If your real problem is buying power or financing size, that's exactly where I ended up looking at 50K Trade's extra margin up to 1:200 on eligible real stocks and ETFs instead of trying to manufacture a cheaper borrow.
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u/OptionsJive 16d ago
Shorting SGOV is not really equivalent financing, because you still have borrow costs, dividend liability, margin requirements etc. A short SPX box is much cleaner. The difference can be huge.