SSF .. why the free money?

E

empee

Hi,

I have been experimenting with SSF; if you go to www.onechicago.com the yields are ridiculous. I have been buying the future and shorting the stock. I am trying to figure out what risks there could be:

a) surprise dividend by the underlying company paid before the SSF is delivered.

b) OCC/company behind it goes BK

c) broker calls the short side of the trade.

I recently closed a BBT SSF trade for 2.4% in 6 days; thats over 400% annualized (i bought it for .44 and sold it for .03 instead of holding till expiration).

So, knowing there's no free money and most ppl know SSF exist, why the high yields? Theoretically, you could borrow money and put these on all day if you could handle the risks outlined above.. is there more that I am missing?

Thanks

PS Anyone else trade SSFs? There is no SSF group on ET, just financial futures.

PS: I have using interactive broker's EFP to put on the trades but it seems to be quirky/not always working in which case I do each leg seperately.
 
Thanks for posting this.

I think at the individual level the biggest risk is C.) that you point out. Is there a broker dealer that is gonna let you borrow MGM shares for 40 or 70 days?? Would be curious for input on that.

At the institutional level its scalability and liquidity for sure. If you tried to put these on with serious size, you are going to chase up the offer very quickly on the SSF's and that will erode the margin spreads.
 
At this time, MGM stock is at 4.90/4.91 and the SSF is at 4.17/4.50 so the spread between the stock bid and the SSF offer is .40. So selling the stock and buying the SSF gives you a spread of .40? IB shows 450K shares of MGM are available for short sale. SO how can this be, that there is such a large spread?
 
If there was money to made at this some computer would have arbed it down to nothing in no time. It is intriguing tho...
 
Quote from pismo10:

If there was money to made at this some computer would have arbed it down to nothing in no time. It is intriguing tho...
More...

Hmmm.. interested in this. Look at GM April for 1.65, GM Sep 1.22. Is that a risk free arb?
 
This is no free lunch. the discounts happen in hard to borrow stocks, usually the short rate eats your profit. It it doesnt its because your broker happen to have shares avaliable
 
I've done some of these a number of months ago. Both long stock/short SSF and short stock/long SSF.

It can be difficult to get a favorable entry price on the SSF leg due to the wide inside markets. It's probably best to do the SSF leg first during low volatility then the stock leg. Sometimes splitting the bid/ask works other times you have to go almost to the bid/ask to get a SSF fill. Or maybe some sort of automated program might work better than manual entries. Margin interest, if any, will diminish the return. I kept asking myself if there wasn't something I was missing, such as a risk I hadn't thought of, maybe there is and I just overlooked it. Of course it's also rather boring, like waiting around for an option premium to wither away.

If you do look at it further and you use IB set up your own EFP interest page on TWS. The one on IB's web site doesn't up date in real time.
 
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