Another thing I’m still curious about is who the buyers of these box spreads are (assuming the legs are sold as a combination and not separately) . The discussion says the arbitrage opportunity comes from the FDIC but the FDIC does not directly buy the spread; they allow the CD to exist, which the buyers should have access to. So do the buyers have access to options but not CDs, or are there other advantages that they have which I am missing?
the FDIC does not directly buy the spread; they allow the CD to exist, which the buyers should have access to
I’m not sure how important FDIC insurance is to the story here, but worth noting that it has a 250k per account limit. So I don’t think financial institutions would have access to an unlimited amount of it.
Another thing I’m still curious about is who the buyers of these box spreads are (assuming the legs are sold as a combination and not separately) . The discussion says the arbitrage opportunity comes from the FDIC but the FDIC does not directly buy the spread; they allow the CD to exist, which the buyers should have access to. So do the buyers have access to options but not CDs, or are there other advantages that they have which I am missing?
I’m not sure how important FDIC insurance is to the story here, but worth noting that it has a 250k per account limit. So I don’t think financial institutions would have access to an unlimited amount of it.