Park spare cash in IB account

[OneChicago]

Quote from Nym:

tnx for the very useful idea.
What about stock dividends when you are shorting a future and/or holding a stock for just a small period of time?
Do these effects cancel at expiration time?

Equity derivative traders (options or futures) are not entitled to dividend distributions unless exercised or taken to delivery prior to ex_date. With that said dividends represent significant risk to the longs and shorts and care must be taken to avoid getting harmed.

Sticking to SSF for this discussion, there are two ways to deal with this risk. Using our OCX.Original contract ("1C") the present value of the expected dividend is subtracted from the SSF calculation. This method works fairly well with expectations match reality. Problems arise when the dividend amount or the timing of the distribution changes while holding the position. When this occurs the SSF value will move irrespective of the move in the underlying and variation pay/collect cycles will debit/add to the long and short holders.

This dividend variation risk can be considerable as positions begin to grow. This is why we created the OCX.NoDivRisk ("1D") contract. In this contract the dividend is not priced in at all. Instead on the morning of ex_date we adjust the prior night's settlement price of the SSF by the then known value of the dividend. During this adjustment there is no margin pay/collect cycle. In this way neither the long or short party has exposure to the dividend variation risk.

Best

 

[Radijs]

I have found this thread very informative, but was wondering whether this can be done with EUR cash as well. I would like to avoid exposure to the USD at this point.

- Is joint execution of both legs on offer somewhere, in EUR?

One could trade stock and future separately, in EUR, but this raises some questions:

-- How about the risks of setting up both legs separately?
-- Would margin calculations (say at IB) would still reflect the low risk of the combined position?
-- Where/how could I find or set up a type of screener which finds the best yield? Which underlying typically would be good candidates for this type of trade?

My guess is that with separate legs the risks involved might quickly outweigh the small benefits involved, right?

Or is all of this hardly relevant because there is a way to change my EUR to USD, park the cash using an EFP on OCX, and but also perfectly hedge the currency risk at a sufficiently low cost?

Looking forward to your answers, many thanks!

Radijs

 

[OneChicago]

Quote from Radijs:

- Is joint execution of both legs on offer somewhere, in EUR?


One could trade stock and future separately, in EUR, but this raises some questions:

-- How about the risks of setting up both legs separately?
-- Would margin calculations (say at IB) would still reflect the low risk of the combined position?
-- Where/how could I find or set up a type of screener which finds the best yield? Which underlying typically would be good candidates for this type of trade?

My guess is that with separate legs the risks involved might quickly outweigh the small benefits involved, right?

Or is all of this hardly relevant because there is a way to change my EUR to USD, park the cash using an EFP on OCX, and but also perfectly hedge the currency risk at a sufficiently low cost?

Looking forward to your answers, many thanks!

Radijs [/B]

 

[OneChicago]

Quote from Radijs:

- Is joint execution of both legs on offer somewhere, in EUR?

I do not believe so.

One could trade stock and future separately, in EUR, but this raises some questions:

-- How about the risks of setting up both legs separately?

You could theoretically leg into the EFP but you will be introducing execution risk. Pricing of the two legs may be inferior.

-- Would margin calculations (say at IB) would still reflect the low risk of the combined position?

You will need to discuss with your broker.

-- Where/how could I find or set up a type of screener which finds the best yield? Which underlying typically would be good candidates for this type of trade?

At OneChicago:
http://www.onechicago.com/?page_id=4289


My guess is that with separate legs the risks involved might quickly outweigh the small benefits involved, right?

You would be turning a financing trade into two risk trades.