The Conversation That Changed How I Think About Borrowing
A few years ago I was catching up with a friend who works in trading. One of those long, unstructured conversations that start with family updates and somehow end in markets. Mortgage rates had just spiked, and I was complaining about how expensive it had gotten to borrow against anything. He shrugged and said, almost casually, “You know you can just borrow against your portfolio with box spreads, right?” I stared at him. He kept going: the rates are usually lower than anything you’d get from a bank because the options market is effectively bidding for your loan. You don’t have to sell anything, and the interest is tax deductible. Despite my initial incredulity, the concept seemed to make more and more sense as he walked me through it. It slowly started to dawn on me that this could be game-changing.
If you're like me, you approach the finance world with a healthy amount of skepticism. Triple levered ETFs, SPACs, derivatives on derivatives. These products are meant to pull people in with promises of quick wealth and then charge them excessive fees. This idea is not one of them. Box spreads have been used by institutions and market making firms since the dawn of options trading to manage their cash balances efficiently. The concept of box spreads to a trading professional is trite and unoriginal, which means that while the idea isn't sexy, it's reliable and useful.
Over the following months I kept coming back to it. The more I looked, the more the mechanics held up. This wasn’t a loophole or a gimmick. This was a financing tool that had been sitting in plain sight for people who already had portfolios - and almost no one outside of professional trading firms were taking advantage of it.
While a multi-leg option strategy called a box spread sounds daunting and complicated, it really comes down to three parts.
Aligning the expiration dates to create a customized payment plan
Finding the strike price combinations for each expiration date to get the lowest rates
Executing the box spread cleanly and correctly
To really maximize value from a box spread, you have to do all three parts well. The practical value comes from the operational layer….that’s the insight that led to the founding of Alterra.
Alterra is an investment advisory firm focused on the execution and ongoing management of box-spread strategies. We help clients borrow against their existing portfolios without selling holdings. Further, we can set up custom loan schedules that fit your specific cash flow needs and monitor your portfolio for potential margin call risk. Our job is the part most people can’t do well on their own - identifying the right rates in the market, structuring the trade, and handling the execution cleanly.
At the highest level, the benefits are simple:
- a lower effective rate than traditional financing
- meaningful tax benefits on the interest paid
- customized payment plan based on your needs
- keep your assets invested and fully exposed to future growth
If any of this resonates - if you have a portfolio and need financing - I’m happy to talk through whether it makes sense for your situation. Feel free to reach out to me either via email jimmy@meetalterra.com or on LinkedIn.
