haircut charge

[Maverick74]

Quote from Don Bright:

GS debit interest = 6.50 (approx), and credit interest paid = 4.75 - 5% depending on whether the credit is cash or short stock sales.

So you have another 1.5% or so differential - still get 6 times your equity with no haircut.

As floor traders, we loooooved doing reversals, especially back when we could get 15% on the short stock interest (1980's of course).

As interest rates (carry costs) change, opportunities do pop up.

As I said, you have all the facts...shall I send a registration packet to your home or to Vtrader? LOL.

Don

OK, so you are saying then that you charge 200 to 300 bp over the 6.5%. So that comes out to 8.5% to 9.5% for risk capital. That's a little different then 2%.

Yip, you can rest easy now.

 

[Maverick74]

Quote from Don Bright:



As floor traders, we loooooved doing reversals, especially back when we could get 15% on the short stock interest (1980's of course).


Don

Don, when rates were that high the debits on the reversal were very high as well. It was not a free lunch. The free lunch was single listed options where you had all the order flow and you could keep your spreads wide enough to put the reversal on for a low debit.

 

[Don Bright]

Oh, and to the gentleman concerned about our profits, if any, we share more information than any firm I have ever seen, but I think it is asking a bit much to share our P & L.

And, if the "street rate" that you suggest was with a firm that had capital to use on overnights, then I wonder why all the groups and guys coming over from Schoney, Generic, etal, are so happy with our rates for seasoned traders?

If you're getting those rates, then perhaps you should buy an exchange membership and start a firm - a lot more room these days with some of the bigger players gone.

Don

 

[Don Bright]

Quote from Maverick74:

Don, when rates were that high the debits on the reversal were very high as well. It was not a free lunch. The free lunch was single listed options where you had all the order flow and you could keep your spreads wide enough to put the reversal on for a low debit.

Ahhh, yes, the days of multiple quarter point edges...ah, those really were the days my friend.

Don

 

[Don Bright]

Quote from Maverick74:

OK, so you are saying then that you charge 200 to 300 bp over the 6.5%. So that comes out to 8.5% to 9.5% for risk capital. That's a little different then 2%.

Yip, you can rest easy now.

6 times equity with no haircut, and the long short differential is pretty good, IMO. And the 1.75% difference on long vs. short stock is what is paid, no 8.5% or anything like that. So, up to 12 Times (equity) for 1% (6 times free, plus 6 times at 2%) plus 1.75% is still a pretty good deal. This is why the pairs and mergers are doable.

Those that put the $$ to use are doing pretty well, after they figure it all out. Our traders are pretty smart, especially the ones we allow to use $5-$20 Million or so.

Don

 

[magicz]

don,
so your saying if i had 100K you let me keep 600K overnight with only 150k hedge?

 

[Don Bright]

Quote from magicz:

don,
so your saying if i had 100K you let me keep 600K overnight with only 150k hedge?

Generally the guys are long/short pairs within 20% of $$ value. That counts as hedged for our purposes. Then, yes $300K Long, $240K short or so, sure.

Don

 

[yip1997]

Quote from Maverick74:

OK, so you are saying then that you charge 200 to 300 bp over the 6.5%. So that comes out to 8.5% to 9.5% for risk capital. That's a little different then 2%.

Yip, you can rest easy now.

Mav,

I am a very conservative guy. I need to understand everything before I start taking advantage of it. I don't believe free lunch in this society.

I still don't fully understand it.

Let us use a simple example to see what you and Don charge for the following position:

Long 200 contracts of RUT May 800 put and short 200 contracts of Apr 800 put. Net debit for each contract is $7.8.

Suppose I have 100K capital, under 10% stress test, the max loss is around 169K. what is the haircut charge for my account?

[edit] I just want to know any interest credit and interest debit to the account

 

[Cre8UrF8]

So if you use 18- 30 times your deposit, at 6% on top of the 6.5%, means you are really paying 12.5 %. I wonder how many traders opened accounts at bright thinking that they were told they would only pay 3.6% interest, but were shocked at the end of the month when they were hit with 12.5%?

 

[magicz]

Quote from Cre8UrF8:

So if you use 18- 30 times your deposit, at 6% on top of the 6.5%, means you are really paying 12.5 %. I wonder how many traders opened accounts at bright thinking that they were told they would only pay 3.6% interest, but were shocked at the end of the month when they were hit with 12.5%?

I am sure if you going to hold for something that long you obviously have an edge to beat the interest or else you're pretty stupid to draw that much capital to let it sit and pray.