Hedge DIA with SPY

T

tryagain

Hi Traders.

I am quite new to trading but I came up with an "idea".
Please forgive me in advance if it sounds to silly.
The thing is:
What if you open an Account at a prop firm with lets say 100k.
With the overnight lev. 6 to 1 or so you will buy for about 300k DIA shares and short sell for 300k SPY shares.
In that case you should get interest on the 300k short position , right.
Could you please tell me, in a spare moment you my have, what the catch is with that idea.

Thanks in advance for your comments on this.

Regards.

C.
 
Quote from tryagain:

Hi Traders.

I am quite new to trading but I came up with an "idea".
Please forgive me in advance if it sounds to silly.
The thing is:
What if you open an Account at a prop firm with lets say 100k.
With the overnight lev. 6 to 1 or so you will buy for about 300k DIA shares and short sell for 300k SPY shares.
In that case you should get interest on the 300k short position , right.
Could you please tell me, in a spare moment you my have, what the catch is with that idea.

Thanks in advance for your comments on this.

Regards.

C.
More...

The catch is that you must also pay interest on the long position - at a higher rate than what you are paid for your short position.
 
Hi, thanks for you quick reply

But I thought you would even get paid interest for being long money in your account..
Or maybe I am totally wrong....otherwise you would also have to pay interest if you buy 100 TWX

Regards
 
Hmmm, I thought the 6 To 1 overnight leverage would be free of paying interest...
the other thing, you could close the position just prior to the div. ex date

Regards.

C
 
Quote from tryagain:

Hi, thanks for you quick reply

But I thought you would even get paid interest for being long money in your account..
Or maybe I am totally wrong....otherwise you would also have to pay interest if you buy 100 TWX

Regards
More...
You will use much more money than is in your account.
The net result would be better if you just did nothing and earned intrest on the money in your account. So this makes no sense at all.
 
Quote from tryagain:

Hmmm, I thought the 6 To 1 overnight leverage would be free of paying interest...
the other thing, you could close the position just prior to the div. ex date

Regards.

C
More...
you thought wrong
 
Quote from tryagain:

Hmmm, I thought the 6 To 1 overnight leverage would be free of paying interest...
the other thing, you could close the position just prior to the div. ex date

Regards.

C
More...

leverage is nothing else as securities collateralized credit. there is no sense for interest free credit.
 
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