Is Margin Interest Rate of a Brokerage Relevant?

Question

I've seen brokerages intensely advertise their margin interest rate, and I've seen this being use to compare them. Why is this important, when you can get a low interest rate loan using in the following way?

Sell PUT $X expiring in 1 year
Buy CALL $X expiring in 1 year
Short 100 stocks at $X
Close all positions at the end of the year for a slightly larger amount (denoting interest).

I've tried using the method above, and the rate is usually around 1%, which is lowest than the margin rate of any brokerage I can find.
Am I missing something here, is there any real value in margin rates, or is this all a marketing sham?

Bob Baerker · Accepted Answer

There are several things that you 'might' be missing.
You must pay a borrow fee for borrowing the stock to short.  For liquid large caps it's a fraction of a percent - low but it still must be paid.
You wouldn't use a hard to borrow stock initially but if something happened to make it HTB, you might get a forced buy in.  That often happens in the after market when B/A spreads are wider.  You'd then have directional risk since options won't trade until 9:30 AM EST the next day.  And even you didn't get a forced buy in, the borrow rate could zoom up.  Not likely a problem with IWM or SPY.
If there's a dividend, you'll have to pay it to the lender on the Pay Date if short on the ex-date.
Calls cost more than puts due to the carry cost (interest rate).  You're  buying the call and selling the put so that's a net debit.
If the underlying drops a lot and your short put gets deep ITM with no time premium remaining, it's likely to be assigned early which means B/A slippage and additional commissions if you're still paying them.

Aganju · Answer

In addition to what Bob wrote:
Brokers have little else to advertise. With unlimited free trades, free accounts, and free anything, how can a broker differentiate itself from the competition? Aside from a nicer logo? So they go for secondary, less important things.
Depending on your trading patterns, they might become relevant, sure, but as you said, for most users / activities, they have negligible impact.

Is Margin Interest Rate of a Brokerage Relevant?

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