Treasury Bill/Option Strategy
A Treasury bill/option strategy, sometimes called a 90/10 strategy, is a way of structuring a portfolio so that most of the money is protected while only a small slice is exposed to the risk of a bet on price movement. The bulk of the funds, roughly the majority of the portfolio, is put into short-term government debt (Treasury bills) which pays a modest, low-risk rate of interest and is backed by the government. The remainder is used to buy options, which are contracts that give the buyer the right, but not the obligation, to buy or sell an asset at a set price before a set date.
The logic is that the Treasury bills form a safety net. Because they pay interest and are considered very low risk, they can, over the holding period, grow back toward the original amount invested even if the options expire worthless. The options portion is where the speculation happens: if the market moves the way the trader hopes, the options can produce a large percentage gain relative to the small amount spent on them, because options can move disproportionately compared to the underlying asset. If the trader is wrong, the loss is capped at the price paid for the options, known as the premium.
The nuance that trips people up is the split itself and what it actually protects against. The often-cited "90/10" is a rough illustration, not a fixed rule. The right proportion depends on the yield available on Treasury bills at the time and how much of the original capital the trader wants to make sure is preserved by the bill's maturity. It also only protects the money allocated to bills; it does nothing to guarantee the option side won't lose everything, and it says nothing about taxes, transaction costs, or the fact that Treasury bill interest itself fluctuates with prevailing rates.
It's also worth separating this from simply "having some cash and some options." The strategy is specifically about sizing the safe portion so that its expected growth roughly offsets the amount put at risk, turning the combined position into something closer to a bet with a defined, calculable worst case rather than an open-ended one.
This term depends on a rule or threshold that changes over time, so no specific figure is quoted here. The specific 90/10 split and any implied Treasury bill yield are illustrative and change with prevailing interest rates; a human should confirm current T-bill yields (e.g., via Treasury.gov or a broker) before citing a specific ratio as realistic, and should not present '90/10' as a fixed or regulatory figure.
For a day trader, this illustrates a general risk-sizing principle, capping the maximum loss on a speculative options position to a known, small amount by parking the rest in low-risk instruments, even though day traders rarely hold actual Treasury bills intraday.
A trader has $10,000. She puts $9,000 into a Treasury bill that matures in six months, and uses the remaining $1,000 to buy call options on a stock she expects to rise. If the stock doesn't move as hoped, the options expire worthless, but the Treasury bill's interest over six months helps offset that $1,000 loss. If the stock rallies sharply, the options could be worth several times their $1,000 cost, while the bill continues accruing interest untouched.
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