As a self-taught personal finance nerd, one of my favorite feelings is when I learn about a strategy for the first time and it proceeds to blow my mind.

That's exactly what happened when I read about box spread loans.

A box spread loan entails buying and selling options to engineer a theoretically zero-risk trade that allows you to borrow large amounts of money close to Treasury rates.

At today’s rates, you could use this strategy to potentially borrow hundreds of thousands of dollars at 4% or less!

This makes it a substantially cheaper alternative to most other financing options like a margin loan, student loans or even a mortgage!

It also comes with a big built-in tax advantage that other financing options don’t.

The interest you pay is treated as a capital loss for tax purposes and can be deducted from gains elsewhere in your portfolio.

Factoring in the additional tax alpha, your true cost of borrowing can be in the range of ~3% in high tax brackets!

This article will break down exactly how it works.

Warning: This post is fairly technical, so feel free to skim around the edges around the specific math used.

If you want to implement this strategy, I recommend working with a professional.

I’ll break down exactly how you can execute a box spread loan here, but I heavily recommend working with a professional to help with execution here.

A box spread loan is a combination of 4 separate trades executed on the same ticket:

This sequence of trades creates a "net credit" which is the amount you are borrowing and immediately get access to on execution.

You want to execute this trade on European-style options, which avoids early assignment risk and ensures you can hold them until expiration.

On US markets, this typically means SPX or XSP options (versus say SPY).

Here's exactly what this sequence of trades would look like today (January 12 2026) to borrow $10,000 for 1 year:

SPX is currently trading around $6,944.

For a $10,000 loan, we need a 100-point spread on SPX (100 points x $100 multiplier = $10,000)

Here's the structure we can use (all with a December 18, 2026 expiration):

As you enter this 4-legged order in, it should show a net credit, which is the amount you would receive as the loan.

You can play around with the limit price to target the specific rate you want.

You can use this formula to calculate the limit price:

Credit = Box Width / (1 + rate x days/365)

For 4.0% over ~340 days to December 18, 2026:

Credit = 10,000 / 1.0373 = $9,640... which works out to a limit order at $96.40

While you can self-serve this on brokers like Schwab, it can get very complicated if you are not super experienced with trading options.

I strongly recommend working with a professional to help execute this.

For the right investor, box spread loans can be a fantastic option to borrow close to 50% of your brokerage value.

If you have a brokerage account worth $5M+, you could easily use this strategy to borrow 7-figures at fairly low rates.

Here are some of the biggest benefits:

1. Better rates than almost anywhere else

When executed correctly, a box spread loan can provide you with a better effective interest rate than almost any other channel.

They work out at least 100bps better than a margin loan, mortgages and most other "low cost" borrowing options.

You could potentially even arbitrage these rates by seeking higher yields from other investments i.e. borrow money at 4% and aim to earn more by investing the same dollars elsewhere.

2. Your existing portfolio stays untouched

Typically when you have to raise cash, you need to sell some investments to generate the money.

This stops them from growing, while also potentially leading to a hefty tax bill in the form of capital gains.

Box spread loans, however, let you borrow against your assets in the market without selling them or interrupting compounding.

3. Favorable tax treatment on the interest paid

The effective "interest" you pay is captured as a capital loss for tax purposes. 

Under Section 1256, this is classified as a 60% long-term, 40% short-term capital loss and can be deducted against other gains in your portfolio.

If you don’t have enough gains, you can also deduct $3,000 from your ordinary income and carry over the rest to future tax years (like you would with tax-loss harvesting).

If you take out a traditional margin loan, the interest there is classified as an investment interest expense and can only be deducted against your net investment income for a given year. Additionally, you need to itemize your deductions to claim it.

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If you are a regular reader of this newsletter, you will notice this article is more technical than most.

This is because box spread loans are very tricky if you don’t know exactly what you are doing.

Here’s my list of stuff to watch out for:

1. This is very hard to DIY, especially if you're not experienced with trading options

The biggest practical risk here is execution risk if you attempt to DIY this.

This is a relatively complicated transaction -- it typically requires a specific level of options approval from your broker and a portfolio margin account.

You also want to ensure that you use European-style options on a security like SPX which ensures that you cannot be early assigned (which can blow this up). 

Plus, you're going to have to factor in commissions, bid-ask spreads and liquidity as you go further out in the future or increase the amount you borrow.

2. Watch out for margin calls

Be careful about how much you borrow relative to your overall account value so you don't run the risk of a margin call.

Even though this transaction is theoretically no risk, the position's value will fluctuate with interest rates (rising rates will increase your "debt"), which affects margin requirements.

If you are borrowing a large amount relative to your overall account balance, and the market has a massive fall, you run the risk of having your trades partially liquidated which destroys the zero theoretical risk setup.

The best way of dealing with this is using conservative limits. If you stay under 30% of your account value, you should be reasonably safe.

Higher amounts are likely fine too, but will take active monitoring.

3. Liquidity risks can get real on long-term trades

The further out your options get, the market will have less liquidity for you to buy into and out of these positions.

This is why some extremely long-term box spread loans may be hard to execute in practice, even if they theoretically should work. 

While you lock in your effective rate on the initial transaction, if you have to exit the "loan" before expiration, you need liquidity in the market to be able to do that without a significant concession on price. 

Plus, if you ever roll your transaction further out in the future, you incur new transaction costs and get repriced with new interest rates.

Another very interesting application of box spreads is using this strategy in reverse to earn a treasury-like yield with favorable tax treatment.

You can buy an ETF like BOXX which is a box spread loan in reverse.

You earn a treasury-like yield from your capital, but the gain is taxed as capital gains instead of ordinary income.

If you hold for 365 days, this qualifies you for more favorable long-term capital gains taxes on the federal level. You can also offset this gain with losses elsewhere in your portfolio.

However, you lose the tax benefit that treasuries or treasury funds have of being tax-free on the state and local level.

Box spread loans are the exact type of strategy I love to write about.

They are a very clever way to borrow large amounts of money that most people have absolutely no idea about. 

While there are certainly a bunch of risks (particularly on the execution side), for the right affluent investor, they can be a fantastic deal and more affordable than almost every other source of capital.

But, unless you are extremely well-versed with options, I'd definitely recommend working with a professional to execute this.

P.S. One of my most read articles on Silly Money is where I break down why I started direct indexing (versus investing in index funds).

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Author Disclosure: I'm writing this as myself, not as some investment adviser or broker-dealer. I’m not a tax professional, this is all purely educational or my personal thoughts - not investment, legal, tax, or professional advice. Financial decisions involve risk, including losing money. Taxes are complex. Please do your own research or talk to a licensed pro before acting on anything you read here.