Hi GYP Members,
This week’s Office Hours tackled a question that almost every investor and trader eventually faces:
As traders, we intentionally keep cash available.
We need dry powder for market selloffs, new opportunities, portfolio adjustments, volatility spikes, and additional buying power when markets move against us.
But there’s an important difference between keeping cash available and allowing that cash to sit there doing nothing.
With today’s interest-rate environment, idle capital can potentially generate meaningful income while it waits.
So Tony Battista and Tony Rihan took a deep dive into many of the alternatives available to investors and traders, including:
Treasury Bills • BIL • SGOV • SPX Box Spreads • BOXX • CDs • Municipal Bonds • Corporate Bonds • Money-Market Funds • Bank Preferred Stocks • Longer-Term Treasuries
But the most important takeaway from the session wasn’t identifying the investment with the highest yield.
It was developing a framework for deciding where your cash belongs.
The GYP Idle-Cash Framework
Before putting idle cash to work, we believe there are four major questions to consider:
1. YIELD — What am I actually earning?
Yield matters.
But blindly chasing the highest yield can be dangerous.
If one investment pays an additional 50 or 100 basis points but requires you to accept significantly more credit risk, duration risk, illiquidity or buying-power usage, is that additional yield really worth it?
Sometimes it is.
Sometimes it absolutely isn’t.
The important point is that yield should never be considered in isolation.
2. SAFETY — Who owes me the money?
This was one of the most important concepts of the entire session.
Whenever you own an interest-producing investment, ask:
Who ultimately owes me this money?
If you own a Treasury, the U.S. government owes you.
If you own a CD, the bank owes you, subject to the applicable deposit-insurance framework.
If you own a corporate bond, the corporation owes you.
If you own a municipal bond, the municipality or issuing authority owes you.
If you own a bank preferred, you’re accepting the credit risk of that financial institution.
And if you own an ETF such as BIL or SGOV, you own shares of a fund that owns securities—you don’t directly own the individual Treasury securities in the same manner.
Tony Rihan shared several personal experiences that shaped the way he thinks about this today.
Over the years, he owned bonds from companies that later experienced serious financial problems, including Enron and Aeromexico. He also discussed what he experienced during the 2008 financial crisis with family assets held at Lehman Brothers and Bear Stearns.
Those experiences produced a simple lesson:
Don’t reach for a little extra yield without understanding what additional risk you’re accepting.
Your cash reserve has a different job than the aggressive portion of your portfolio.
3. LIQUIDITY — How quickly can I get my money back?
For active traders, liquidity can be just as important as yield.
Imagine earning slightly more interest on your cash—but then the market falls 5%, volatility explodes and you suddenly want that capital back.
Can you access it efficiently?
Can you sell without giving up significant value?
That’s why we compared the liquidity characteristics of:
Treasury securities
Treasury ETFs
Corporate bonds
Municipal bonds
Preferred stocks
CDs
SPX box spreads
One particularly important discussion involved SPX box spreads.
Tony Rihan generally approaches a box with the expectation that he will hold it through expiration.
If you believe you’ll need the money in three months, one approach is to structure the box around that time horizon rather than automatically putting on a longer-duration box and assuming you’ll exit early.
You can even consider laddering expirations:
3 months → 6 months → 9 months → 12 months
That allows portions of your capital to become available at different intervals.
Tony Battista also emphasized that the displayed midpoint on a four-legged box doesn’t necessarily mean you’ll actually get filled there.
Execution matters.
Bid/ask spreads matter.
Commissions matter.
And ultimately:
The implied yield you’re actually receiving matters.
4. BUYING POWER — The Question Traders Can’t Ignore
This is where GYP members need to think differently from traditional investors.
A long-term investor may ask:
“How much does it yield?”
An active trader should also ask:
“How much buying power does it consume?”
Suppose you have $100,000 sitting in your brokerage account.
You find an investment that pays a slightly higher yield—but putting $100,000 into it removes most of that $100,000 from your available trading buying power.
Was the extra yield worth it?
Maybe not.
This is why we spent considerable time discussing the differences between initial margin, maintenance margin, portfolio margin and brokerage house requirements.
Not every fixed-income instrument receives identical treatment.
And even within Treasuries, maturity matters.
Very short-duration Treasury securities can be extremely buying-power efficient, while longer-duration securities can require progressively more capital because their prices are more sensitive to interest-rate movements.
Brokerage treatment can also vary, so always verify the actual requirement in your own account.
Treasuries: Our Starting Benchmark
Treasuries became the benchmark against which we compared many of the alternatives.
They combine several attractive characteristics:
Credit Quality + Liquidity + Yield + Buying-Power Efficiency
But don’t make the mistake of thinking all Treasuries have the same risk.
A three-month Treasury bill and a 20-year Treasury may share the same issuer, but they have dramatically different sensitivity to changes in interest rates.
Credit risk and price risk are not the same thing.
BIL & SGOV
For investors who want convenience, BIL and SGOV provide easy access to short-duration Treasury exposure through an ETF.
You can:
Buy and sell them like stocks
Invest virtually any amount
Maintain substantial liquidity
Receive distributions generated by the portfolio
We also explained why these ETFs periodically appear to fall around their distribution dates.
That doesn’t necessarily mean you’ve economically lost that amount—the distribution is part of the investment’s total return.
Convenience, however, comes with a fund structure and expenses, so it’s still important to understand exactly what you own.
SPX Box Spreads
For options traders, this may have been the most interesting part of the session.
A properly constructed SPX box spread can economically resemble borrowing or lending money at an implied interest rate.
That can make boxes an interesting alternative for idle cash.
But they’re not magic.
You need to understand:
Four-leg execution
Bid/ask spreads
Commissions
Implied yield
Expiration
Early-exit considerations
Brokerage buying-power treatment
Applicable tax considerations
The most important lesson:
Don’t evaluate a box based solely on the credit you receive. Calculate the actual annualized implied yield.
And whenever possible, consider matching the expiration of the box with when you realistically expect to need the capital.
Corporate Bonds: A Lesson Learned the Hard Way
Tony Rihan was particularly candid about mistakes he made earlier in his investing career.
He sometimes reached for extra yield in corporate bonds.
Sometimes it worked.
Sometimes it didn’t.
A corporate bond is ultimately a promise from a company to repay you.
And companies can fail.
The lesson isn’t that corporate bonds are bad.
The lesson is:
How much additional yield are you receiving for accepting the additional credit and liquidity risk?
An extra percentage point isn’t automatically a bargain.
Municipal Bonds
Municipal bonds can provide meaningful tax advantages for certain investors, particularly those in higher tax brackets.
But favorable tax treatment doesn’t eliminate:
Credit risk
Interest-rate risk
Liquidity risk
Always compare the after-tax yield with the risks you’re accepting.
Bank Preferred Stocks
We also spent significant time discussing an area Tony Rihan personally owns: selected bank preferred stocks.
Tony discussed preferred securities from major financial institutions including Morgan Stanley, Goldman Sachs, JPMorgan and U.S. Bancorp.
Preferreds can potentially offer:
Higher income
Potentially favorable dividend taxation when applicable
Potential capital appreciation if interest rates eventually decline
But let’s be very clear:
Preferred stocks are not cash substitutes.
They carry materially greater risk than Treasury bills.
Their prices can decline substantially when interest rates rise, and if the issuing institution encounters financial problems, preferred shareholders can suffer significant losses.
Tony discussed what happened to bank preferreds during the financial crisis as a reminder that higher income comes with higher risk.
The reason Tony personally finds selected preferreds interesting is the combination of discounted prices and income while waiting—not because they’re equivalent to risk-free cash.
These were examples of Tony’s personal holdings, not recommendations for GYP members.
So Where Should $100,000 of Idle Cash Live?
Near the end of the session, we used a hypothetical $100,000 cash balance to bring everything together.
The answer wasn’t:
“Put it all here.”
Instead, we discussed the possibility of diversifying idle capital across different characteristics:
Some money could prioritize immediate liquidity.
Some could prioritize maximum buying-power efficiency.
Some could be committed for several months in exchange for a known implied return.
A smaller portion could potentially accept additional risk in pursuit of higher income.
And some longer-duration exposure could potentially benefit if interest rates eventually decline.
In other words:
Don’t just diversify investments.
Diversify your liquidity.
Diversify your maturities.
Diversify your sources of yield.
The GYP Idle-Cash Checklist
Before moving your idle cash anywhere, ask yourself:
Who owes me the money?
What is my true yield after fees, expenses and execution costs?
What are the tax implications?
How quickly can I turn the investment back into cash?
What happens if I need that money tomorrow?
How much buying power will I lose?
What happens if interest rates rise?
What happens if the issuer gets into financial trouble?
Am I actually being compensated enough for the additional risk?
There isn’t one perfect answer for everybody.
A trader who may need capital tomorrow has very different requirements from an investor who knows the money won’t be touched for twelve months.
But the fundamental principle is simple:
Idle cash doesn’t have to mean unproductive cash.
The objective is to make your capital work while preserving the liquidity, safety and buying-power flexibility that caused you to hold cash in the first place.
That’s not simply trade management.
That’s portfolio management.
🔒 PAID GYP MEMBERS — CONTINUE BELOW FOR THE FULL OFFICE HOURS REPLAY
