Ha! What was old is new again.*
From Bloomberg, October 29:
In late 2021, as the housing market overheated and the Federal Reserve’s benchmark interest rate hovered near zero, Tony Yang found an unconventional way to fund his down payment.
He logged into his Charles Schwab brokerage account, built a trade he’d discovered on Reddit — and unlocked about $650,000 to help finance a Bay Area home.
The trade, dubbed a “box spread,” carried a kind of mystique. By combining two opposing options positions — one bullish, one bearish — Yang built a strategy that mimics a fixed-rate loan: upfront cash now, repayment at a set date, and a locked-in cost in between.
Yang used it to borrow at just 1.6% for five years — well below the rate on his traditional mortgage — creating a down payment without having to sell assets he wanted to keep in the market.
“The stock market was doing really well in 2021, and I felt it was a bad time to sell to make the down payment in cash,” said Yang, who was working for payments company Stripe Inc. at that time. “Borrowing against it keeps me in the market and avoids capital gains tax.”
Now, that same strategy powers SyntheticFi, a San Francisco-based fintech Yang co-founded to help others do the same.
Box spread loans, also called synthetic borrowing, aren’t accessible to every buyer. They require sizable portfolios to back them. But for those with the assets, they offer speed, flexibility, and often a lower cost than traditional bank credit — plus potential tax advantages.
Once a tool for hedge funds and family offices, box-spread loans now sit alongside direct indexing, custom portfolios, and options overlays — all pitched as tax-efficient ways to gain financial control. For affluent investors, they’re a means to stay invested, defer taxes, and unlock liquidity without touching traditional lenders.
It’s part of a broader shift: strategies built for institutional desks are being repackaged as personal-finance hacks for a new kind of well-heeled borrower — risk-tolerant, control-seeking, and comfortable navigating complexity. They’re not avoiding debt; they’re engineering it on their own terms.
The approach is catching on among wealth advisers. Tyler Miles, managing director at Wedmont Private Capital, in July made a cash offer for a four-bedroom house in Howard County, Maryland. Working with SyntheticFi, he was able to close the deal the following month.
“I didn’t even look at a traditional mortgage,” he said. “We wanted to be competitive, we wanted to be able to close quickly, and that wasn’t going to fit that timeline.”
This year, Miles has advised a dozen clients on similar financing, using the loans to fund vehicle purchases, new business ventures, and more.
In a box spread, two sets of options with matching strike prices — call spreads and put spreads — create predictable cash flows that closely mimic fixed income. By selling one, an investor receives a lump sum of cash upfront, and agrees to pay a preset amount at maturity. It’s a strategy that behaves predictably — until markets act up.
The gap between what the investor receives upfront and repays at maturity determines the effective interest rate — now roughly 5 to 20 basis points above comparable Treasury yields, according to Vest Financial, a $54 billion derivatives-based asset manager that officially launched its synthetic‑borrow platform this week.
“We have taken the financing that’s embedded in the option market, which is institutionally priced, and we’ve delivered it” to the retail market, said Karan Sood, Vest’s chief executive officer.
Box spreads have long been a trading tool on Wall Street, used to shift money across books or lock in small pricing gaps. What’s changed is who’s using them. SyntheticFi has brought on more than 100 financial advisory firms to guide clients through the process. To users, it feels like a faster, cheaper alternative to a bank loan. There’s no credit check, no underwriting — just a few clicks to convert investment holdings into cash.
“It’s a low-interest-rate loan against your own assets with some interesting bells and whistles,” said Chris Whitaker, chief wealth manager at Apriem. One of his clients recently used the strategy to finance a boat.
Synthetic borrow could disrupt the lending environment, according to Sam Gaeta, founder of Defined Financial Planning.
“Banks often rely on other value-added services, such as securities-backed lending, to win wealth management business,” he said. “If we can offer a solution that allows clients to access liquidity using the margin power of their investment portfolio at an implied interest rate similar to the risk-free rate, the banks lose some of that leverage in their value proposition to clients.”
But the math only works if the market does. If stocks fall, so does the value of the collateral. That triggers margin calls — the same mechanism that has unraveled countless trades in past downturns. If the client can’t post more collateral, their portfolio gets liquidated. The promise of frictionless money becomes forced selling....
....MUCH MORE
*Back in the day, Russell Sage offered a similar product and became very, very wealthy.
November 2015 - "Derivatives And Usury: The Role Of Options In Transactions Used To Act In Fraud Of The Law"
I have been meaning to put together a post on Russell Sage, one of my heroes, for pretty much the lifetime of this blog and now, thanks to the power of procrastination, I don't have to.
A quick search of the blog shows only one mention of Sage, the fact that in Forbes' first rich list in 1918, Mr. Sage's widow, Olivia, clocked in as the second-richest woman in America.
August 2019 - "The Early History of Regulatory Arbitrage" (How Put-Call Parity Helped Russell Sage Evade the Law And Become Rich)
Really rich.
Banker to the Vanderbilt's rich.
One of the richest Americans of all time rich.
Some day I'll get around to doing a post on Mr. Sage, he was an interesting person.
As was Olivia , Mrs. Sage, the distaff side of the family parity.
If interested see also: September 2020 - The Grand-Père Of Option Pricing Theory: Louis Bachelier:
*****
....Now what Bachelier was about to do wasn't quite at the level of Leibniz or Newton inventing the calculus but it was orders of magnitude beyond the state of the art as practiced by Russell Sage, who amassed one of the greatest Wall Street fortunes of his day, $3 billion or so in 2020 dollars, based on simple put/call parity to evade New York state usury laws.
Here's the introduction to a 2012 post where I decided to go with Bachelier rather than Sage:
The Guy Who Discovered Black-Scholes Before Mssrs. Black and Scholes
Okay, not all of B-S but enough that if anyone had been paying attention they could have made money off the young man's work.But back to Professor Bernstein's letter, he notes that the B-man's thesis advisor was Henri Poincaré, which is a pretty good start but additionally links to
I was going to do a post on the King of 19th century put and call brokers but you may find this more interesting.....
Centenary of mathematical financeAlrighty then, a pretty big deal. If interested see also:
The date March 29, 1900 should be considered as the birthdate of mathematical finance ....
"Pricing the Future: Finance, Physics, and the 300-Year Journey to the Black-Scholes Equation "
Variables: σ = volatility of returns of the underlying asset/commodity;
S = its spot (current) price; δ = rate of change; V = price of financial derivative;
r = risk-free interest rate; t = time.
Finally a cautionary tale from a very smart guy:
And Olivia? Our links have rotted so here's the Internet Archive:
America's Richest
Page 15 of 17 from The First Rich List
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