Box Spread Lending: A Tax-Efficient Way to Leverage Investment Portfolios

 

At Exceed, we’re always looking for ways to help advisors give their clients more control, flexibility, and tax efficiency. Our newest offering — Box Spread Lending — does exactly that.

This strategy enables investors to use the value of their existing portfolios in a cost-effective and tax-advantaged way — all within their separately managed account (SMA), with full transparency and no disruption to their long-term holdings.

 

What Is Box Spread Lending?

A box spread is an options structure that, when managed properly in an approved margin account, functions as a synthetic secured loan.

In simple terms:

• The investor must be approved for option spread strategies and maintain a margin account with sufficient equity
• The investor enters a combination of listed index options (for example, on the S&P 500).
• The structure delivers cash today and obligates repayment of a fixed amount in the future, based on option terms at initiation and expiration
• The difference between cash generated and the amount due at expiration represents the implied “interest rate.”

In today’s environment, the effective annual borrowing rate is between 3.9% and 4.3% ¹Based on closing prices of SPX options on 10/28/25 and using the bid/ask midpoint of each option price, and terms can be structured from six months up to five years — offering meaningful flexibility and predictability.

Because these transactions are fully collateralized and executed on major exchanges, there’s virtually no counterparty or credit risk. The positions simply sit inside the client’s SMA, visible and marked to market daily.

 

How It Compares to Traditional Lending

 

 

 

With box spread lending, the rate is fixed for the life of the box trade, avoiding the uncertainty of margin or credit line adjustments.

And unlike margin loans or SBLOCs, which typically generate nondeductible interest expense, the box spread structure can offer a powerful tax benefit.

 

Tax Advantage: Turning Interest Expense Into a Deductible Capital Loss

Here’s where box spread lending stands out. Because this structure is implemented through options, the “interest” you pay isn’t classified as loan interest at all — it’s recognized in many cases as a capital loss in the options account²Box trades may be subject to Section 1256 treatment, which splits gains and losses into a 60/40 mix of long-term and short-term capital gains for tax purposes. Contracts subject to Section 1256 also require annual mark-to-market accounting. This treats open positions as if they had been sold at their fair market value on the last business day of the tax year, and then requires that both realized and unrealized gains and losses be recognized and reported annually, regardless of whether the contracts were actually sold..

That’s because, at expiration, the position settles for more than when it was initiated — creating a realized capital loss equal to the borrowing cost.

• For taxable investors, that loss can be used to offset other capital gains, including gains from stocks, ETFs, or real estate.
• In many cases, this treatment is more favorable than paying standard loan interest, which often isn’t deductible.

In effect, the cost of borrowing becomes tax-efficient, reducing the after-tax rate well below comparable lending options.

(As always, investors should consult their tax advisor regarding individual treatment.)

 

 

Key Potential Benefits

 

1.  Access Liquidity Without Selling

Clients can effectively borrow against their stock and bond holdings without realizing gains or reducing market exposure. It’s an ideal way to meet liquidity needs while staying fully invested.

2. Fixed, Competitive Borrowing Costs

Current effective “borrowing” rates near 4% are significantly lower than margin or bank-secured lines — and they remain fixed for the duration of the box trade/synthetic loan (up to five years).

3. Tax-Advantaged Structure

Instead of paying non-deductible interest, clients may be able to record a capital loss that can offset other gains — a distinct advantage for high-income investors.

4. Transparent and Secure

All trades are exchange-listed and fully collateralized within the client’s SMA. There’s no separate loan agreement, credit check, or hidden leverage.

5. Seamless Implementation

Exceed manages every aspect of the transaction through existing custodians such as Schwab or Fidelity, making setup and oversight simple for advisors.

 

When Box Spread Lending Makes Sense

This approach is particularly useful for:

• High-net-worth clients who want to access liquidity without disturbing long-term holdings.
• Executives or business owners facing near-term liquidity needs or capital calls.
• Investors with concentrated stock positions who prefer not to sell or use traditional margin borrowing.

It can complement, or even replace, other financing tools by offering lower fixed costs and improved tax efficiency — all within the comfort and transparency of an SMA.

 

Why Exceed

Exceed specializes in tactical option strategies that integrate seamlessly into advisor-managed portfolios. Our expertise allows us to deliver institutional-level execution and monitoring while keeping the process simple, compliant, and client-friendly.

We handle the technical details — so advisors can focus on how best to use this liquidity tool to serve their clients’ broader goals.

 

Final Thoughts

Box Spread Lending gives advisors a new way to help clients access cash efficiently, predictably, and tax-advantageously.

With effective rates near 4% annually, fixed terms up to five years, and the ability to treat the “interest” as a capital loss, it’s an elegant alternative to margin loans or bank credit lines — allowing clients to stay invested while unlocking portfolio liquidity on their own terms.

To learn more about how Exceed can implement box spread lending within your clients’ SMA portfolios, contact our team for a detailed overview and suitability discussion.

 

 

 

 

IMPORTANT DISCLOSURE: The information in this blog is intended to be educational and does not constitute investment advice. Exceed Advisory offers investment advice only after entering into an advisory agreement and only after obtaining detailed information about the client’s individual needs and objectives. No strategy can prevent all losses or guarantee positive returns. Options trading involves risk and does not guarantee any specific return or provide a guarantee against all loss. Clients must be approved for options trading at the custodian holding their assets, and not all retirement accounts are permitted to trade options. Transaction costs and advisory fees apply to all solutions implemented through Exceed and will reduce returns. Specific securities discussed are intended to illustrate the concepts covered and do not constitute a recommendation of any security and do not purport to represent the performance or holdings of any Exceed portfolio.