2009 tax futures yielding 1.5%
Jason Ruspini February 24th, 2008
The “>34″ contracts are being offered at 96. If you discount the possibility of the marginal tax rate for that year being below 34%, this is an annual yield of about 1.5%, after transaction fees. The 2010 “>34″s are paying around 1.35% and the 2011s, 1.2%. Buying any of those allows you to sell higher contracts on the ladder at reduced margin, as described before.
A possible trade that stands out on the board is to sell the 2010 “>36″s in the high 70s and buy the 2010 “>38″s for 50. I don’t see how a spread of 30 is warranted there, as any legislation that accelerates the Bush tax cuts sunset will likely put the highest marginal rate at 39.6%, higher than 38% at least. That is, I think the market’s implied probability of the rate ending-up in the 36-38 bin is too high. This trade would make roughly a 39% return on frozen margin, which could be improved to 50% by additionally buying the “>34″s at 95. (unannualized)
yea .. but have you seen the depth of the order book on these things .. maybe 10-15 contracts at that price and then there is a huge gap to the next one. Intrade needs to eliminate thinly traded contracts and push more liquidity into contracts that actually can be traded.
Yes I have seen the order book on these things.. pathetic, of course, though 3 weeks old. I doubt eliminating thinly-traded contracts would help a lot. I think the issue is more about the difficulty of funding accounts, with possible market-makers being constrained by the regulatory situation.