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

[luisHK]

Hadn't checked ina while the margin requiremments, IB seems to have changed its page about those.
Was under the impression it was from 10 to 30% for the bonds I hold, although it might be 20 to 30%

https://www.interactivebrokers.com....&ex=us&rt=1&rsk=0&pm=0&rst=101004100808080101

 

[jalee802]

I have about 800k USD in idle cash with Interactive Brokers.

Teach me your ways, jedi master.

 

[Sig]

You could simply buy a wide box in the SPX. Minimal commissions, and you can decide how far out you want to go. Put the order in as a spread at the implied rate you want to get. If you're not filled, you can walk the price down to the minimum rate you are willing to take.

Feeling too lazy to think this through at the moment, does this end up getting you 60/40 fed tax treatment on the "interest" regardless of holding time?

 

[FSU]

Feeling too lazy to think this through at the moment, does this end up getting you 60/40 fed tax treatment on the "interest" regardless of holding time?

Yes, this would be another advantage. Buying a box for under even, it expires for even (whatever the width of the box is) . This "interest" would be booked as a profit which would be treated under the 60/40 rule.

 

[gescob3]

Teach me your ways, jedi master.

It has taken some getting used to but your "cash figure" in a portfolio margin account is almost irrelevant. It is all about available funds.

For example, I could short sell 1 million dollars in stock and I would increase the cash balance in my account bu 1 million, but it doesn't mean that my buying power increased by 1 million.

Just as a result of credit spreads I have a lot of cash proceeds.

 

[elt894]

Yes, this would be another advantage. Buying a box for under even, it expires for even (whatever the width of the box is) . This "interest" would be booked as a profit which would be treated under the 60/40 rule.

I don't know if it's ever enforced, but it seems this would be considered a conversion transaction and should be reported as ordinary income.

 

[Sig]

I don't know if it's ever enforced, but it seems this would be considered a conversion transaction and should be reported as ordinary income.

Thanks, I had never even heard of this little piece of the tax code and I generally think of myself as pretty proficient at it. Little gems like this are the reason for coming here! You're right, especially with the explicit mention of straddles and the phrase "In other words, the return on your investment is, in substance, like interest on a loan." it sure sounds like it would have to apply. Do you know of any enforcement actions or private letter rulings on this?

 

[FSU]

I don't know if it's ever enforced, but it seems this would be considered a conversion transaction and should be reported as ordinary income.

Interesting

 

[elt894]

Do you know of any enforcement actions or private letter rulings on this?

I don't know of any. In fact, I don't think I was ever able to find any mention of it besides the tax code itself. It's probably the most obscure nugget I'm aware of.

 

[Sig]

I don't know of any. In fact, I don't think I was ever able to find any mention of it besides the tax code itself. It's probably the most obscure nugget I'm aware of.

You definitely win the award for the obscure nugget part! I ran into something similar, the term apparently has a number of other defined meanings aside from this one so very difficult to do a search on. Thanks again.