Advice on what to do with idle cash held at IB that needs to stay at IB

[gescob3]

As a result of several large short SPX options spreads, I have about 800k USD in idle cash with Interactive Brokers.

Due to my maintenance margin, my "available funds" falls very very short of this amount and I am looking for something to do with the "idle cash".

Currently, I have the money just sitting and IB is paying 1.95% on it.

Does anyone have any recommendations on what I could with the funds that would have a negligible margin impact but pay a higher interest rate than 1.95%?

 

[Robert Morse]

T-Bills

 

[ET180]

T-Bills

View attachment 201124

Unlike Fidelity, Schwab, and Vanguard, IB does not let you buy treasuries through the primary market. They only offer secondary market. Also, and this changed fairly recently, the minimum order size appears to be $1M.

Another alternative is to basically capture the Fed Funds rate by buying 100 shares of SPY, sell ATM call, buy ATM put at same strike as the call for a net credit. Go at least one month out and that will be good for about a 2.2 - 2.3% yield. Not great, but slightly better than what IB pays and much more liquid than treasuries with IB apparently. Unfortunately, if you live in a high tax state, then that strategy doesn't have the tax advantage that treasuries do.

 

[GRULSTMRNN]

If you often need to tap into idle cash then let it accumulate cash deposit rates, not worth it to trade in and out of tbills at current yields, imho, and if you look to park the funds longer I would rather consider a solid investment grade corporate bond that pays 4-5% p.a.

Edit: sorry, I missed your last sentence. Low argin impact? Then only tbills.

As a result of several large short SPX options spreads, I have about 800k USD in idle cash with Interactive Brokers.

Due to my maintenance margin, my "available funds" falls very very short of this amount and I am looking for something to do with the "idle cash".

Currently, I have the money just sitting and IB is paying 1.95% on it.

Does anyone have any recommendations on what I could with the funds that would have a negligible margin impact but pay a higher interest rate than 1.95%?

 

[GRULSTMRNN]

Not true, you can buy tbills via IB at a multiple of 1k, I just did several sub 1mln notional tbill trades this past week. Secondary market really matters not primary market because that is why IB only assesses a 1% haircut on tbill holdings. Also, it is the secondary market you need to trade out your bills through in case you need to roll or liquidate prior to maturity. Also, I am confused about your comment on taxes. You don't have a tax advantage trading treasury debt when you generate short term gains, they are taxed at federal income tax rates. You are excempt from state and local taxes but need to file a form at year end for each trade. Plus add the complexities and commission and spread to your latter idea and it turns into a complex construct. At IB you can put a simple buy limit in for the tbill and trade out the same way, done.

Unlike Fidelity, Schwab, and Vanguard, IB does not let you buy treasuries through the primary market. They only offer secondary market. Also, and this changed fairly recently, the minimum order size appears to be $1M.

Another alternative is to basically capture the Fed Funds rate by buying 100 shares of SPY, sell ATM call, buy ATM put at same strike as the call for a net credit. Go at least one month out and that will be good for about a 2.2 - 2.3% yield. Not great, but slightly better than what IB pays and much more liquid than treasuries with IB apparently. Unfortunately, if you live in a high tax state, then that strategy doesn't have the tax advantage that treasuries do.

 

[ET180]

Not true, you can buy tbills via IB at a multiple of 1k, I just did several sub 1mln notional tbill trades this past week. Secondary market really matters not primary market because that is why IB only assesses a 1% haircut on tbill holdings. Also, it is the secondary market you need to trade out your bills through in case you need to roll or liquidate prior to maturity. Also, I am confused about your comment on taxes. You don't have a tax advantage trading treasury debt when you generate short term gains, they are taxed at federal income tax rates. You are excempt from state and local taxes but need to file a form at year end for each trade. Plus add the complexities and commission and spread to your latter idea and it turns into a complex construct. At IB you can put a simple buy limit in for the tbill and trade out the same way, done.

I know you can buy in multiples of 1k, but for me and one other person that I know, the order returns with an error once submitted. I don't have the error message now and I probably can't produce it now since the market is closed, but I can post it next week. Here's what my friend said when I asked him about his experience:

"Yes, TWS implies that you can purchase t-bills in $1000 increments. But if you enter an order to buy less than $1 Million face value you will get an error message that your order cannot be processed because it is too small.

It didn't work that way last August when I bought my last t-bill, I bought far less than $1 Million with no problem. They changed this since then, perhaps at the start of 2019."

The other brokers that I mentioned provide direct access to the primary treasury market and do not charge (apparently) any commissions. Yes, the secondary market does provide the ability to sell back the treasuries early and maybe those other brokers also provide some access to that to exit trades early, but I wish IB provided the same access to the primary market as those other brokers. The state tax exemption is the tax advantage that I was referring to. If you live in a state with high income taxes as I do, the savings is not insignificant. As for the complexity of my suggestion, it's a really simple strategy that is placed with a single order. The commission for placing that trade should be under $3 for a 1 lot through IB. Sometimes although rarely, I have even seen negative commissions for some option legs.

 

[GRULSTMRNN]

IB charges a very low commission rate for tbill orders. Imo its not worth it to consider other approaches due to the small cost involved of trading tbills directly. And the need to access primary markets is negligible unless you time your trade on the issuance and maturity dates which may not coinciden your funding and investment needs.

I know you can buy in multiples of 1k, but for me and one other person that I know, the order returns with an error once submitted. I don't have the error message now and I probably can't produce it now since the market is closed, but I can post it next week. Here's what my friend said when I asked him about his experience:

"Yes, TWS implies that you can purchase t-bills in $1000 increments. But if you enter an order to buy less than $1 Million face value you will get an error message that your order cannot be processed because it is too small.

It didn't work that way last August when I bought my last t-bill, I bought far less than $1 Million with no problem. They changed this since then, perhaps at the start of 2019."

The other brokers that I mentioned provide direct access to the primary treasury market and do not charge (apparently) any commissions. Yes, the secondary market does provide the ability to sell back the treasuries early and maybe those other brokers also provide some access to that to exit trades early, but I wish IB provided the same access to the primary market as those other brokers. The state tax exemption is the tax advantage that I was referring to. If you live in a state with high income taxes as I do, the savings is not insignificant. As for the complexity of my suggestion, it's a really simple strategy that is placed with a single order. The commission for placing that trade should be under $3 for a 1 lot through IB. Sometimes although rarely, I have even seen negative commissions for some option legs.

 

[ET180]

IB charges a very low commission rate for tbill orders. Imo its not worth it to consider other approaches due to the small cost involved of trading tbills directly. And the need to access primary markets is negligible unless you time your trade on the issuance and maturity dates which may not coinciden your funding and investment needs.

Say I want to buy 30 $1k face value treasuries through IB. How much would the commission be on that trade? I ask because that's equivalent to a 1 lot of the alternative strategy that I mentioned. Also assuming that commissions scale linearly with trade size.

 

[luisHK]

If you often need to tap into idle cash then let it accumulate cash deposit rates, not worth it to trade in and out of tbills at current yields, imho, and if you look to park the funds longer I would rather consider a solid investment grade corporate bond that pays 4-5% p.a.

Edit: sorry, I missed your last sentence. Low argin impact? Then only tbills.

Solid investment grade corporate bonds payng 4 to 5% ?
I've been building a buy and hold bond portfolio over the last few months aiming at those yields and using various duration (3 to 10 y), closer to 4% actually, and trying to increase it, but the choice is quite limited, and with long term bonds now hardly paying more than short term bonds the longer term bonds look even less attractive. Add to this only a few bonds have a low spread, it doesn't get easier at all.
Lacking of knowledge with bonds so keen on reading advice.
Besides I find T bills convenient with IB, but just rolled some last week and they yielded around 2.38% including commission on the secondary market, little less than what Robert showed above. Order was above 1mm btw, so can't comment on the new limit, but a few months back bought several Tbills for smaller amounts without issue.

 

[monkeyc]

Other alternatives: money market mutual funds, bond ETFs like SHV & BIL. With portfolio margin, their margin requirements are only slightly higher than T-Bills

I've never had an issue buying Treasuries from IB under $1MM. Just did it recently. I believe their commission is 0.002% for the 1st $1MM, with a $5 min. Above $1MM, the commis is lower