pay 4 for what ?
Conversion strategy
- Thread starter bigspeculate
- Start date
Robert Morse
Sponsor
That is assuming a very low rate. $4 in interest is just over 2%.
which is what a bank would pay and what the pricing will be based on.
he will obv pay more.
Could you elaborate on that? How will the interest rate effect the position if I enter now and hold till expiration?
If you find a free lunch, the broker will steal it.
Especially id its a salami on rye
read about put call parity.
you will have to fund the position and that will cost you about 4 dollars if you find au sofr. If you aren’t on margin then this is what you are earning: the sofr rate. You can earn this by buying commercial paper.
Robert Morse
Sponsor
View a conversion as an alternative to a T-bill that comes with risk. Those risks are often changes in dividend flows, pin risk and early assignments. And, if you borrow money to buy this, interest rate risk. You can avoid the pin risk by using cash settled indexes. Jan expiration today has about 241 days or about 34 weeks. The treasure does not offer 34-week T-bills, so I'll look at the 26 week auction. The last one was paid about 1.53%. That would be your risk-free alternative for any retail trader. If you can get more than that using cash settled indexes including all fees, and you have no better use for that capital the has risk, it might make sense to do those type of trades. If you must borrow money to do this, I'm guessing your cost will be more like 3% to 7% in this market and can change. I hope this helps.
Correction:
Profit is correct but ROI is not.
As others have mentioned, if this is done on margin you'd pay interest to fund the 100 share purchase.
If done with cash, the 8 month yield would be ~1.35% or ~2% annualized.
A 1 year CD is 1.75-1.85% so not worth the small amount more plus CDs will likely be higher after the June FED meeting.