Assume you sold 10K worth of EFP. Say your stock leg has went up to 15K and now your account is -5K. If you cover 5K of EFP on tuesday, the delivery will take place on friday. So over the weekend you are flat. If you do it on any other day, you will be responsible for the interest over the weekend.
IBEFP: 1 potential risk that i find
- Thread starter Nasdaq5048
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Assume you sold 10K worth of EFP. Say your stock leg has went up to 15K and now your account is -5K. If you cover 5K of EFP on tuesday, the delivery will take place on friday. So over the weekend you are flat. If you do it on any other day, you will be responsible for the interest over the weekend.
ah thanks for that. on a unrelated note, can a stock get delisted from SSFs?I'm short a piece of garbage CDO bond insurer(think it will go to zero) but Im worried I wont be able to roll over nor borrow shares when the contract expires, and Im pretty sure the options market makers will be pricing in a worldwide financial meltdown in the puts by the time the stock sinks and ONE might stop making markets
Quote from stock777:
This is not correct. If the stock moves down, you will earn all the interest you would earn if the stock didn't move, PLUS you would earn additional interest, because you would be able to use the extra cash in order to sell additional EFPs. If the stock moves up, then you will pay small amount of margin interest as a result. The extra profits will, on average, cancel out the extra interest you pay. If you actually learn how to use EFPs, you will discover that this whole thing about the stock moving is an easily handled, non-issue.
This is not correct. If the stock moves down, you will earn all the interest you would earn if the stock didn't move, PLUS you would earn additional interest, because you would be able to use the extra cash in order to sell additional EFPs. If the stock moves up, then you will pay small amount of margin interest as a result. The extra profits will, on average, cancel out the extra interest you pay. If you actually learn how to use EFPs, you will discover that this whole thing about the stock moving is an easily handled, non-issue.
You would earn interest if the stock moves down provided that the amount of the move results in a balance exceeding 10k.
The avg profits cancel out the avg extra interest paid in a downward trending market.
I guess the bottom line is, I've tried it for 3 months (Jul-Oct, with some Dec positions remaining) and did not find the incremental gains that meaningful compared to the effort and the loss on the 10k, etc. (And I have yet to truly figure out what the extra cost of work my CPA will do to account for the straddles and for which I will be charged $200/hr unless his rates go up next year which would be a bit more. After-tax interest on 10k is only around $325/yr you know!). Actually in fact, I target around 30k at IB moving the rest in/out as needed.
To each his/her own. Not saying a good strategy doesn't exist, just saying that it isn't all roses and for me, it didn't prove worthwhile.
And also, the % of return showing on the platform when a stock pays dividend, it doesn't take into consideration that your dividend will be taxed right when you get it. ie, less return. So, when you see a 7% return on the platform. It isn't really 7% b/c the dividend you get from longing a stock will be taxed.