No. of Recommendations: 9
I have been trying to think of ways to take advantage of their low margin rates.

It's a loan that then can call on an hour's notice, and when they do
it will be the day that your portfolio value is at an all time low.
For example, they tightened margin requirements on Nov 20 2008. Check a chart.
Just resist the temptation, you'll be happier in the long run.
The same is true of essentially any broker margin loan. Don't do it.

One slightly safer way to take advantage of low rates:
I have a pile of cash with IB, used as security to write puts.
The face value of all my puts is more than my cash pile, so if they were all assigned
to me the same moment I would have to use their margin loan for a little while.
Which, as you say, would not be expensive.
I've never actually had to use more than 1/3 of the cash pile in the last few years, probably under 1/4.
My rate of return on the puts has been outstanding. Unlike MI, the
return you simulate beforehand is exactly to the penny the return you get.
Used the way I use them, anyway. My return has been 22%/year,

Of course it's not just IB who has low rates.
For example, option premiums have low implied rates built in.
I own a lot of deep in the money call options that give me leverage
of 2x, 3x, 4x at effective interest rates in the 2-3.5% range.
These "loans" can't be called.

Another alternative is simply to take out a home equity loan and invest the proceeds.
That's what I've done.
The interest rate isn't as good, but I got 10 year money at 2.32%.
(in euros, and the rate floats once a year, but it can't be called)

Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.