Box Spreads can give you an extra ~9%+ annually "risk-free", but only if you're...
Box spreads, in short, are nothing but a delta-neutral (means non-directional bet) options strategy that can be used to get cheap "loans", for lack of a better word, with a fixed amount to be paid by the end of the term.
Given that, where would you see the most benefit, if:
* You're getting insane rates , IBKR \~ 5.15%/6.15%, Schwab \~ 10-11%, Fidelity 7.5-11.8%, you want a rate close to the risk-free rate (SOFR)
* You've been burned before from varying interest rates and don't want to worry about them rising.
* You don't want to get charged daily for your loan, you just want to pay at the end of the term
* You want a tax deductible loan to offset tax from your profits
Box Spreads give you all the benefits above. Depending on your broker and the spreads, if you execute well, you can get close to the risk-free rate and way better than your broker's.
They have a fixed "rate", say you get a 4% loan of $96k, to pay back $100k by end of the year, you don't have to worry about rising interest rates or whatever, you only have to payback $100k ($4k difference), and you only have to pay it by the end of the year, it doesn't get charged from you daily.
Since this is treated as a trade, it will be registered as a capital loss.
But even then, to get all those benefits, you'd need to execute extremely well on all four options legs, and determine your term well. The underlying index you choose must be cash-settled, European and extremely liquid.
To clear up for any confusion, the 9% figure comes from the comparison between the margin rate you'd get from your broker. My benchmark was IBKR, which has BM+1.5%, and on a portoflio margin (x6) that would be about 9%, for other brokers I mentioned above depending on your leverage, it might be even more.
EDIT:
I think it's also fair that I mention where the risks lie within box spreads. Trading as a whole is arguably a zero-sum game, you only get rewarded for taking risks. Risks lie on you executing a good-fill.
Another point I forgot to mention after seeing some comments on my last post, is if you are not someone comfortable or already using margin, box spreads are NOT for you! Do not take them just cause you got cheap loans here. It only helps if you're someone who was in the process of taking margin and just wants to get a few extra % off their trade and do it in a tax-deductible way. The 3 criterias are not negotiable when doing box-spreads.
Was arguing to make another post for this, but I had someone ask me how to get low-interest rates on box spreads to get some guaranteed returns from T-BILLs. There are ways for sure, but they also have risk, remeber zero sum game here.
1. Other currencies: the biggest one here is CHF(Swiss francs), current rates sit around -0.5%, so getting even lower than 0 is possible, the underlying is called SMI, and it also cash-settled and European. Another is JPY using the NIKKEI index at around 1%, and EUR for around 2-3% with OESX.
2. Open up yourself on all 4 legs and fill in as the market moves: Pretty risky and might put you in deeper pit.
Anyways, the term RISK-FREE only happens after you fill in, until you do, there is one. The best and safest way to do so is use a 4 combo leg with one price, which will give you whatever the box spread's rate is.