Jan 9, 2023
Key takeaways:
How "cash rich" strategies can benefit in a high interest rate environment
The advantage of holding treasury bills
How to purchase treasury bills in a TD Ameritrade account
Since all of the defined outcome strategies on Olive are net credit or neutral, when you execute an outcome no cash is used. However, Olive does not allow trades on margin (or “naked” options), the capital or investment amount for each outcome represents the maximum loss incurred if the underlier drops to $0 at maturity. An active outcome would typically hold capital in the form of cash in your brokerage account until maturity. This makes all of Olive's strategies "cash rich."
Why it matters: In a zero interest rate environment, holding cash is fine because there is no opportunity cost. But as risk-free interest rates rise, the opportunity to generate income on cash can be substantial.
What can you do? Use the cash being held as collateral to buy treasury bills. The current annualized yield on a 3 month treasury bill is 4.51%. There are several reasons why you might choose to hold Treasury Bills instead of cash:
Safety: Treasury Bills are considered to be very safe investments because they are backed by the full faith and credit of the US government. This means that there is no risk that you will lose your money if you hold Treasury Bills until maturity.
Yield: Treasury Bills typically pay a lower yield than other investments, such as stocks or bonds. However, they may still offer a slightly higher yield than cash, which typically does not pay any interest.
Liquidity: Treasury Bills are very liquid, which means that they can be easily bought and sold on the open market. This makes them a convenient investment option if you need to access your money quickly.
How to purchase treasury bills
One of the easiest ways to buy treasuries as well as other fixed income Investments is using the bond wizard on TD ameritrade.com. Watch this short video to learn more.
