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how can i get 4-6% per year on cash, low-no risk?


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Any ideas?

 

I feel arbitrage on cash merger closings can do it, but i'm not too sure it's 90% safe, even as a basket. although this is my top idea so far.

 

Any other things that can do 4-6% , high conviction of no capital loss (perhaps even appreciation?), and providing this gain as either capital gain or income, don't care.

 

so far my savings account is doing about 1.5-1.6%. So clearly that's not close to the goal of 4-6%. I guess one could wait and see if rates go to 4-6% but I'm looking for something now, but also that is somewhat liquid that can be sold within 3 years without a loss.

 

 

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You wont get anything if you are 100% serious about "no loss/no risk". The closest you'll get is trading SPAC units near 10. Been generating 15-20% a year on capital allocated towards that strategy for some time. Doing 5% should be a cake walk. You'll have to accept that if you buy at 10.1-10.2 that you may potentially have 1-2% downside though. Although in my years of doing it, Ive never had that problem. They literally all work out. As long as people value the warrant you are good.

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Guest cherzeca

PFF is a consideration...preferred stock etf yielding 5.5% with some stability to price.  credit risk seems acceptable to me, though you are exposed to interest rate risk (inasmuch as preferreds are affected by credit issues)

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You wont get anything if you are 100% serious about "no loss/no risk". The closest you'll get is trading SPAC units near 10. Been generating 15-20% a year on capital allocated towards that strategy for some time. Doing 5% should be a cake walk. You'll have to accept that if you buy at 10.1-10.2 that you may potentially have 1-2% downside though. Although in my years of doing it, Ive never had that problem. They literally all work out. As long as people value the warrant you are good.

 

Can you give an example, both successful and failed, of how this works? I am curious to know more.

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You wont get anything if you are 100% serious about "no loss/no risk". The closest you'll get is trading SPAC units near 10. Been generating 15-20% a year on capital allocated towards that strategy for some time. Doing 5% should be a cake walk. You'll have to accept that if you buy at 10.1-10.2 that you may potentially have 1-2% downside though. Although in my years of doing it, Ive never had that problem. They literally all work out. As long as people value the warrant you are good.

 

Can you give an example, both successful and failed, of how this works? I am curious to know more.

 

Im lazy on this evening, but briefly, follow a bunch of SPACs, pre deal, pre announcement. As close to their IPO as possible, ideally. There's places that list and track them. Right now theres about 400 out there. $10 is your IPO price for the units. You are guaranteed redemption at $10 plus interest over the course of 18m or whatever. Real example. CFIIU. IPO was August. Traded for a few weeks in 9.90s. I bought it. After 50 days or so the warrants can separate as thus typically rise in value. Unit is stock + % warrant. Between IPO and warrant separation you almost always get at least 2-3%, even before the mania. CFIIU I sold a couple months later at ~10.40 and then the rest on deal announcement. You need to know nothing about the spac, $10 per share of cash, thats it. Then time and deal excitement give you an opportunity to take your %. Even if you are getting in at 10.3 or 10.4, you know where you floor is(10) and can sell higher and add lower pretty effortlessly. CAPAU and FLACU are two I'd watch as they're not as out of hand as many of the others which are now trading near $11. You've realistically had some of these, pre deal close do 5x. So if you want low risk, asymmetric, risk 2-5% and make 3-x00% sounds pretty good to me. RBACU was another. Hung around 10.1-10.3 for a long time after IPO. Traded up to 10.5, then deal talk, $11+.

 

Failed I dont really have an example. I get some IPO at $10 and I also buy in the market. Ive never had one not make money, lowest return would probably be .25% on some of the trade. I guess if you're in at 10.3 and it goes to 10.2 and you find a real investment you take your loss; Ive done that before...but if you arent in a hurry you pretty much always make something.

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You wont get anything if you are 100% serious about "no loss/no risk". The closest you'll get is trading SPAC units near 10. Been generating 15-20% a year on capital allocated towards that strategy for some time. Doing 5% should be a cake walk. You'll have to accept that if you buy at 10.1-10.2 that you may potentially have 1-2% downside though. Although in my years of doing it, Ive never had that problem. They literally all work out. As long as people value the warrant you are good.

 

Can you give an example, both successful and failed, of how this works? I am curious to know more.

 

Im lazy on this evening, but briefly, follow a bunch of SPACs, pre deal, pre announcement. As close to their IPO as possible, ideally. There's places that list and track them. Right now theres about 400 out there. $10 is your IPO price for the units. You are guaranteed redemption at $10 plus interest over the course of 18m or whatever. Real example. CFIIU. IPO was August. Traded for a few weeks in 9.90s. I bought it. After 50 days or so the warrants can separate as thus typically rise in value. Unit is stock + % warrant. Between IPO and warrant separation you almost always get at least 2-3%, even before the mania. CFIIU I sold a couple months later at ~10.40 and then the rest on deal announcement. You need to know nothing about the spac, $10 per share of cash, thats it. Then time and deal excitement give you an opportunity to take your %. Even if you are getting in at 10.3 or 10.4, you know where you floor is(10) and can sell higher and add lower pretty effortlessly. CAPAU and FLACU are two I'd watch as they're not as out of hand as many of the others which are now trading near $11. You've realistically had some of these, pre deal close do 5x. So if you want low risk, asymmetric, risk 2-5% and make 3-x00% sounds pretty good to me. RBACU was another. Hung around 10.1-10.3 for a long time after IPO. Traded up to 10.5, then deal talk, $11+.

 

Failed I dont really have an example. I get some IPO at $10 and I also buy in the market. Ive never had one not make money, lowest return would probably be .25% on some of the trade. I guess if you're in at 10.3 and it goes to 10.2 and you find a real investment you take your loss; Ive done that before...but if you arent in a hurry you pretty much always make something.

 

Thanks very much for your reply. So basically you try to buy as close as possible to $10 and sell out pre-deal benefitting from the warrant value and deal excitement. Is it possible that an unfavoured deal cause the price to dip below $10 significantly? Ie pre-announcement trading at $10, announcement of a bad deal price drops to $5

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Never. The entire benefit of spac(at least before they became the hot new retail investor way to invest in green energy) was that if you didnt like the deal, you could redeem your shares. Many big hedge funds have historically bought spac IPO as a cash alternative and then automatically redeem the shares regardless of the deal. So specifically to your question, they could announce the acquisition of an invisible bridge and you'd still be able to exit at $10.

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Just thinking out loud: would long options be a nice strategy for spac? When it trades at $10, volatility is low and option premium should be cheap. But a surprise deal can get you a nice windfall. Any thoughts on this?

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Not anymore IMO. Theres too much excitement built into the space. Even the trading strategy I detailed above has been rerating and it s an area of inefficiency that more and more folks are waking up to. If you are close to $10, if anything, IMO, you want to load the boat and then sell the options. Had a few great trades this year with SPAQ and PIC where you get quite close to $10 and can take a 5-10% portfolio position with a tight stop(IE a 10% position with a 5% stop really just means you are risking 50 bps) and really swing hard. These were post announcement but pre close. Its a different trade so theres other factors to consider, but until deal close, you still have the floor.

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Buy MO, sell $40 call, buy $40 put.  With the dividend you should work out with a ~4-5% net yield.  I have not implemented it myself and it will depend on the exact price you get for options but it could work out for you.  I am sure there are other candidates if this works.

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Buy MO, sell $40 call, buy $40 put.  With the dividend you should work out with a ~4-5% net yield.  I have not implemented it myself and it will depend on the exact price you get for options but it could work out for you.  I am sure there are other candidates if this works.

 

Interesting. Could an early exercise by the call buyer mess up this strategy?

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I tried the spac thing, it works from time to time, but we are in a spac bubble so it could be the environment and not permanent.

same with anything that has no end date, like preferreds. I guess you could gamble no capital loss for say 1-2 years but it would have to be combined with a really undervalued situation. I like the debenture redemption idea. Has anyone looked at something like HFR, a short-duration bond etf with an interest rate hedge, so if rates rise it will still yield the coupon. However, it only is doing 2.7% but that is getting much closer to the 4-6% target.

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Buy MO, sell $40 call, buy $40 put.  With the dividend you should work out with a ~4-5% net yield.  I have not implemented it myself and it will depend on the exact price you get for options but it could work out for you.  I am sure there are other candidates if this works.

 

Interesting. Could an early exercise by the call buyer mess up this strategy?

 

Good point!  I didn't consider that.  So, If the call is exercised early they give up the time value of the option. It's to your advantage.  You just put the trade on again at the new price but still anchored at $40 via the put.  So let's say it's at $45 and the $40 call is now $6, you make $1 per share when you redo.

 

It's not perfect, the option spreads are big and you'd have to test it to see how they price.  You could also get burned if they drop the dividend but I don't see that as likely in the next year.

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Not anymore IMO. Theres too much excitement built into the space. Even the trading strategy I detailed above has been rerating and it s an area of inefficiency that more and more folks are waking up to. If you are close to $10, if anything, IMO, you want to load the boat and then sell the options. Had a few great trades this year with SPAQ and PIC where you get quite close to $10 and can take a 5-10% portfolio position with a tight stop(IE a 10% position with a 5% stop really just means you are risking 50 bps) and really swing hard. These were post announcement but pre close. Its a different trade so theres other factors to consider, but until deal close, you still have the floor.

 

So pretty much buy at $10.5 and risk 5% or so (since it’s quite hard to find priced at below $10 these days) and try to sell on any hype..?

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Not anymore IMO. Theres too much excitement built into the space. Even the trading strategy I detailed above has been rerating and it s an area of inefficiency that more and more folks are waking up to. If you are close to $10, if anything, IMO, you want to load the boat and then sell the options. Had a few great trades this year with SPAQ and PIC where you get quite close to $10 and can take a 5-10% portfolio position with a tight stop(IE a 10% position with a 5% stop really just means you are risking 50 bps) and really swing hard. These were post announcement but pre close. Its a different trade so theres other factors to consider, but until deal close, you still have the floor.

 

So pretty much buy at $10.5 and risk 5% or so (since it’s quite hard to find priced at below $10 these days) and try to sell on any hype..?

 

I hesitate to say "yes" because as myself and others have touched on, the market is dynamic and you have to adapt and evolve. But generally speaking, yes, I think you have the gist of it and that is what I am doing right now. Normally, I'd hate buying at 10.5, but thats the market and to me, ~5% worst case risk isnt a big deal. However traditionally, IE before the spac bubble started, you'd normally want to keep a lid at 10.2 or so. Buy below and sell over. Much more boring and tedious than whats going on now, but hey, if you want an outsized return for minimal risk, you have to do something and that something in this case is simply monitoring these very rigorously, and then being disciplined with buying and selling.

 

To my knowledge you cant really sell puts on spac because most do not have options until close to a deal close.

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Yes, I have also come to realise that 5% premium is a worthy price to pay for SPACs in today's market even tho I try to aim for 3%. If you were talking bout SPACs pre 2020, I probably wouldn't touch them at 10.5 but the return profile of SPACs has changed so much such that a 5% premium is justifiable.

 

Spactrack calculates the YTD returns of all SPACs that has completed merger in 2020, and that return came up to be 62%. Of course, you can always say this is post merger, which comes with a different risk profile, but my own calculations for SPACs post LOI, pre merger yields return in the 60's as well.

 

Since SPACs have a downside protection at $10, you can use margin to juice the return up to 93% just by putting a 30% leverage on them or even higher if you are aggressive. While you may say that the return is contingent on one picking all the SPACs that are due to merge in that year but a case can also be made that one is able to boost your return even further just by picking SPACs that are close to LOI, merger. I only started looking into SPACs in Sep and already 4 out of my 8 picks have merged/announced LOI (tho 2 of them are a little underwhelming) so it's really not that hard when even an idiot like me can do it.

 

Of course, this is all dependent on the continuation of the SPAC maniac but as far as low risk investments go, I really find it difficult to put my money anywhere else other than SPACs atm

 

 

 

 

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Buy MO, sell $40 call, buy $40 put.  With the dividend you should work out with a ~4-5% net yield.  I have not implemented it myself and it will depend on the exact price you get for options but it could work out for you.  I am sure there are other candidates if this works.

This is what option market makers do and the dividend is priced in.

There is no free lunch!

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