Global Macro Trading Journal

CH1973 · Sep 30, 2015

Daal said:
I was holding the ETF that day. It wasn't a loss, it was the year end capital gains distributions. The ETF gaps down by roughly the same amount of the capital gain distribution. It was a tax free 'dividend'. These days there MIGHT be a tax on the short-term part of the distribution (I need to check with the green trader tax firm), but most of the distributions tend to be long-term and these are tax free

I didnt know about this, I never touched ETFs. So what you are saying is that you got cash that day as a "dividend" payment?.... One question for you, I am a non-us resident and as fair as I know the only US tax I have to pay is a dividend tax. I believe you have the same situation than me, why in the case of this ETF the brokerage firm did not withhold taxes for you?

Daal · Sep 30, 2015

If I had to pay that spread once, it would be fine (like BZF). but every 2-3 months forever will add up!

Daal · Sep 30, 2015

CH1973 said:
I didnt know about this, I never touched ETFs. So what you are saying is that you got cash that day as a "dividend" payment?.... One question for you, I am a non-us resident and as fair as I know the only US tax I have to pay is a dividend tax. I believe you have the same situation than me, why in the case of this ETF the brokerage firm did not withhold taxes for you?

no withholding tax. it was considered a 'capital gain'. as I said, these days the short-term portion COULD have a tax but my calculations, this would reduce the implied yield on the ETF by only 1%

CH1973 · Sep 30, 2015

Daal said:
as far as the CME futures go, I just don't see how I can use that. The spread is too wide and there is the constant need to rollover (due lack of liquidity in the back contracts). The implied cost of having to roll over the contracts (paying the spread and commissions) will wipe out a lot of the benefit

You just need to buy the CME Future, hold it and roll it.
The spread is wide in the screen but if you want to buy or sell the future at a specific price, its very unlikely that you are not filled if the BMF price goes there... The spread for the roll is not wide, and IB comissions are low... about $2.46 per contract. I believe that if you add all the Future costs it will be smaller than the ETF Expense Ratios...

Daal · Sep 30, 2015

CH1973 said:
You just need to buy the CME Future, hold it and roll it.
The spread is wide in the screen but if you want to buy or sell the future at a specific price, its very unlikely that you are not filled if the BMF price goes there... The spread for the roll is not wide, and IB comissions are low... about $2.46 per contract. I believe that if you add all the Future costs it will be smaller than the ETF Expense Ratios...

How much is the spread roll? Because if its similar as the regular session, is going to cost 1% a year or something like that

CH1973 · Sep 30, 2015

Daal said:
How much is the spread roll? Because if its similar as the regular session, is going to cost 1% a year or something like that

The bid/offfer spread will cost you about that per year... However the ETF manager will pay at least this amount to roll thei ETF exposure as well...My point is why pay someone to do exactly the samething I can do myself?

Daal · Sep 30, 2015

CH1973 said:
The bid/offfer spread will cost you about that per year... However the ETF manager will pay at least this amount to roll thei ETF exposure as well...My point is why pay someone to do exactly the samething I can do myself?

Well, the main advantage is that you can lend out the shares and earn short fees (the rate is 9% now, I get half of that when IB lends it). Also, you can buy the exact amount you want to hedge instead of a fixed amount per contract

Daal · Sep 30, 2015

However, I think you might be right for another reason. The margin requirement of the futures is half of BZF (with portfolio margin) there will be some BP release. Also, because it doesnt' require cash, one can by some USTs and earn some interest. This will be bad if libor rises above that UST rate but in the long-run it should be fine. Thanks for the idea

CH1973 · Sep 30, 2015

Daal said:
However, I think you might be right for another reason. The margin requirement of the futures is half of BZF (with portfolio margin) there will be some BP release. Also, because it doesnt' require cash, one can by some USTs and earn some interest. This will be bad if libor rises above that UST rate but in the long-run it should be fine. Thanks for the idea

The points you addressed are all valid, but if its better to carry BZF than the future itself there might be a free arbitrage there and I find it difficult to believe (I am almost sure the BZF Manager hedges the fund expousure using CME or NDF with banks)... Did you check if the return from the BZF is equal a similar position built with futures?...No problem, I grew up trading Fixed Income Futures so I find it easier to trade the CME than the ETFs.....If you need any help let me know

CH1973 · Sep 30, 2015

CH1973 said:
The points you addressed are all valid, but if its better to carry BZF than the future itself there might be a free arbitrage there and I find it difficult to believe (I am almost sure the BZF Manager hedges the fund expousure using CME or NDF with banks)... Did you check if the return from the BZF is equal a similar position built with futures?...No problem, I grew up trading Fixed Income Futures so I find it easier to trade the CME than the ETFs.....If you need any help let me know

Another point came to my mind, the bid/offer spread for BZF seems to be very wide.. My IB is showing 12.32/12.44 market implying almost 0.80% spread...