Kubence offers competitive interest rates by removing the overhead and fees typically charged by custodial institutions like Charles Schwab. Rather than negotiating rates through these intermediaries, we provide direct access to the institutional borrowing market on stock exchanges for your clients.

This is facilitated through a strategy known as box spreads. For more information about box spreads, additional reading can be found with the Chicago Mercantile Exchange (CME Group) and the Options Clearing Corporation (OCC).

Box spreads are an option strategy that replicates a synthetic loan, enabling participants to secure financing with minimal credit exposure. By combining call and put spreads at the same strike prices, investors can lock in a predetermined payoff at expiration, effectively establishing a known borrowing or lending rate. This predictable structure makes box spreads a reliable and transparent tool for short-term financing. As a result, they are often used to efficiently convert option positions into cash flow while mitigating market risk.

Box spreads on SPX options generally qualify for Section 1256 treatment, which splits gains and losses into a 60/40 mix of long-term and short-term capital gains. When utilizing a box spread to borrow funds, the “interest” paid effectively manifests as a net capital loss because the difference between the spread’s purchase cost and its settlement proceeds is characterized as a capital transaction rather than traditional interest expense. This capital loss can then offset other capital gains in your portfolio, reducing your overall taxable income. As a result, investors can use box spreads to secure financing while simultaneously benefiting from a more favorable tax outcome compared to conventional borrowing methods.

Box spreads have been part of modern option strategies since the 1970s, and over time have become a widely accepted approach to short-term financing on major exchanges. Sophisticated participants—such as hedge funds, family offices, and other institutional investors—often use box trades to secure liquidity due to predictable costs, reduced counterparty risk, and potential tax advantages. The long-standing presence and regulatory oversight of box spreads make them a trusted borrowing tool for those seeking both stability and efficiency.

Generally, borrowers may access up to 50% of their non-retirement investments. Kubence can review individual portfolios in order to advise on a precise determination.

Kubence carries risks similar to that of other typical securities-backed lines of credit (SBL). Namely:

• Margin Call: Just as with any other SBL offering, custodians may conduct a margin call in order to settle the accounts.

• Interest-Rate Risk: Rates frequently fluctuate, typically moving in line with the standard overnight financing rate (SOFR). Box spreads lock a rate for a certain guaranteed period of time, during which rates may move in a more or less favorable direction.

• Liqudity Risk: In exceptional market conditions where box spread counterparties are no longer “lending”, Kubence may be unable to roll a box spread past its settlement. In this scenario, clients will automatically transition to a margin loan and may accrue margin interest until liquidity is reestablished. The notional value of 20-day box spreads traded has ranged from $100M-$750M over the last 2 years, indicating generally acceptable values of liquidity.