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And are they right for your clients? By Ben Mattlin

Or maybe it’ s someone who wants to fund private school or college tuition for their child, but their biggest source of wealth is their company stock. Or it’ s an entrepreneur who’ s starting or buying into a business and doesn’ t want to liquidate their retirement nest egg. Or it’ s just a retiree who needs cash to travel or to help a grandchild but absolutely does not want to dip into their retirement portfolio.

An innovative approach to these needs would be to use their stock holdings as collateral for a low-interest, tax-advantaged loan. But wealthy investors are increasingly choosing a novel version of that: an options-based strategy using synthetic loans or“ box-spread” borrowing. These loans involve using the difference in premiums for a set of four options— a long-strategy call and put with a short-strategy call and put on a stock or index, all with the same expiration date but with two different strike prices. The strategy allows the user to take out the net premiums( the difference between what’ s paid and what’ s received for the options) as a loan and then pay back the total amount owed on the options at a later date. This investing approach doesn’ t care if the security moves up or down; you’ re just using the net premiums as a loan. And ideally, these allow you to“ borrow” at less than bank interest rates.

But before your clients rush in, experts have a few caveats.

Who Should Use It?

Jared Elson, CEO of Authentikos Advisory in Morgan Hill, Calif., says the ideal candidates for this tactic have $ 1 million or more in a taxable brokerage account, and they are often entrepreneurs or retirees.

“ It’ s a bad fit, however, for beginners or anyone nervous about options, [ who ] just needs $ 20,000 to $ 50,000,” he says.

There are several advantages that the box-spread approach has over a traditional loan. While the interest due on bank loans could go above, say, 5 %, the“ interest” for box-spread loan users could come out to less than that, around 3 %.( The rates do fluctuate, and don’ t always beat Treasury rates, but they are typically less than a consumer bank loan.) The comparable interest rate here is based on the Secured Overnight Financing Rate, which is a broad measure of the cost of borrowing cash overnight as collateralized by Treasury securities. As of early March, the SOFR rate is 3.66 %.

Note, though, that“ interest” is in quotes for the box loan. Because … it isn’ t really interest. That is, the costs of the loan are not taxed like interest. To the IRS, these are financial contracts, rather than outright loans, so the box-spread costs are taxed as capital losses. Section 1256 of the tax code, in fact, breaks them into 60 %

42 | FINANCIAL ADVISOR MAGAZINE | MAY / JUNE 2026 WWW. FA-MAG. COM