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doctorpot1 shared · Dec 14, 2022 01:24

Money Market Funds is like a flexible T-Bill for investors, and "hack" for options trader

TLDR: Money Market Funds (MMF) like $Fullerton SGD Cash Fund (SG9999005961.MF)$ and $CSOP USD Money Market Fund (SGXZ96797238.MF)$ invest money in Treasury Bills (T-Bills), so by investing in the funds, we are technically investing our money in T-Bills. Although the yield is a bit lower as compared to T-Bills, but it makes up in terms of flexibility and ease of use. It is even more useful for options trader like myself where a significant sum of money are being locked up as collateral for our trades, so instead of letting the money sit idling, we can put them into MMF to get that extra yield.
Cons
The latest Singapore T-Bill yield is 4.4% but $Fullerton SGD Cash Fund (SG9999005961.MF)$ yield is only 4.1%. U.S T-Bill are at 4.3% but $CSOP USD Money Market Fund (SGXZ96797238.MF)$ yield is only 3.6%. This is because there are some management fees involved as well as the timing of the purchase of the T-Bills. There are some additional risk that are unlikely to happen which are counterparty risk (e.g. the fund house run away with our money which is unlikely), and liquidity risk (e.g. everyone suddenly just withdraw their money, forcing the fund to have to sell the T-Bills at a loss).
Pros
However the benefit of the Money Market Fund outweighs the cons. For example to invest in SG T-Bill we need to invest in multiples $1,000, and there are deadlines to follow. If you don't have the money or you forgot to apply, then you don't get any T-Bills. For the Money Market Fund, I had been putting in money and pulling out money as though they are my bank account that gives me an almost T-bill like interest rate. One day, we can be adding $2.59 into the "bank", the next hour we could be pulling $1,000 out to buy stocks. No minimum, no deadline, just daily returns.
Furthermore, there is no worry of oversubscription. If SG T-bill is oversubscribed, we won't be able to get full allocation but a pro-rated amount. Like recently, the 10 November 6-month T-Bill we only get 49% of what we subscribe for. But for MMF, we won't need to worry about that.
Plus if we have smartsave on in Moo Moo, the money in the money market funds are treated as cash, so we can just buy stocks when the opportunity comes and they will redeem the money from our MMF automatically to pay for the stocks. When we have extra cash lying around, it will automatically be placed into MMF too, so that we are always making money with our money. No more lazy bum bum money
On top of that, Moo Moo always gives out fund coupons that allows us to get up to 20% yield for a few days. If we collect enough of these coupons to continuously use for 1 year, that is some amazing returns on such low risk investment. These kind of returns in this kind of market, where to get? so Moo Moo please give me more coupons
Why I invest in it?
I mainly use the MMF to improve my returns on all my cash secured option position. If are new to options and want to understand options, please refer to this Options 101 post below:
doctorpot1: Explained Simply: Options 101
When I started looking into MMF, I have had cash secured PUT (CSP) position in $Grab Holdings (GRAB.US)$, $NIO Inc (NIO.US)$, $StoneCo (STNE.US)$, $Bed Bath & Beyond Inc (BBBY.US)$ and $Palantir (PLTR.US)$. This means that I have put enough cash in Moo Moo to make sure that if I'm forced to buy those shares, I'm able to pay up 100%.
Without MMF, the cash is just sitting in Moo Moo doing nothing. However, just by leveraging the MMF CSP combo, the idling cash can go to work and reap an additional 3.6% to 4.1% yield. This is on top of the average 8% monthly yield that the CSP is generating. On a $10k CSP, that means getting an additional $360 to $410 a year. On a $100k CSP, that is an additional $3.6k to $4.1k a year.
This additional returns helps to reduce risk on my CSP positions, similar to how adding bonds to a high risk portfolio reduced the overall risk in the portfolio by a tiny bit. In the worse case scenario where every company I had position in goes bankrupt, I would had lost everything if I didn't use MMF. With MMF I will lose almost everything, I would be left with a tiny bit of cash, enough to buy a new pillow to cry on . Thus, without the MMF combo, the CSP is just generating 8% yield in a high risk position. But by using the MMF combo, we can reduce our risk a bit by adding on a low risk MMF into the portfolio.
Money Market Funds is like a flexible T-Bill for investors, and "hack" for options trader
However, Moo Moo currently allows only about 50% of the cash locked for CSP to be used. So half of the cash in CSP will still be idling while the other half is working in the MMF, therefore we should divided the returns by half. So on a $10k CSP, that means $5k can be used to get an additional $180 to $205 a year. On a $100k CSP, that means $5k can be used to get an additional $1.8k to $2.05k a year.
Suggestion for improvement
Even though for stock trader, they can use 99% of the money in MMF as though they are cash. Sadly for options trader, currently we can't put 99% of the money locked up as options collateral into the MMF. Only about 50% can be used. So hopefully, Moo Moo can increase that closer to 99% so that we options trader don't feel like the unwanted child
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only. Read more
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doctorpot1
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crawled out of poverty, working towards FIRE!! (financial independence, retired early)
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