Thanks again. It appears they accept both cash and in-kind creations. From the prospectus, page 6: "Cash Creation Unit Risk. Unlike most other ETFs, the Fund expects to effect a substantial portion of its creations for cash, rather than in-kind securities."Appears to be an "in-kind" fund from the report:Thank you for responding, but can they really do this? First, it's a cash creation ETF so the AP process should only entail getting cash from an AP for a creation and giving cash to an AP for a redemption. Second, the AP process entails dealing with the entire creation unit and not selective parts thereof. Happy to be corrected if I'm missing something. Thanks!my guess? Every box has four legs. Two will have a profit, two have a loss. Collectively it's a wash. So, you heartbeat out the gain legs to an authorized participant for cash and then immediately use the cash to close out the losers for a realized loss. Wash, rinse, and repeat to manufacture infinite capital losses with no offsetting realized gains. It's beautifulDoes anyone understand how they accumulated $50mm in capital losses for tax purposes? I've been able to follow most of report and page 8 gives realized gains as around $5mm and unrealized gains as another $5mm, which makes sense. I believe this should've led them to distribute $5mm of realized gains, but instead for tax purposes they are able to show a $50mm capital loss. Is anyone able to connect the dots on that? I lack sufficient tax expertise myself. Thanks!Looks like the Annual Report (as of October 31, 2023) is now available. Perhaps there's something interesting in there.
https://alphaarchitect.com/wp-content/u ... Report.pdf
I see this:
The fund also claimed to have about $50 million in capital losses to carry forward.
To elaborate a little further, the losers don't really have residual value, they expire out of the money. The "loss" was taken against whatever premium the fund paid upfront when the box was sold. So, there's no need to actually transfer the worthless legs of the box to the authorized participant. They can swap just the winning legs for redeemed shares because they constitute the entire value of the box position.
So let's delve into your thesis further. Let's say there's a redemption for $50mm. The AP delivers $50mm worth of BOXX to the ETF manager - and now isn't the ETF manager supposed to deliver the full creation unit (4 legs of the box spread) to the AP? I understand 2 of those legs may be out of the money at that point. But a) in theory they could get into the money before expiration, so if the ETF manager is delivering only 2 legs to the AP then the fund is exposed to some finite market risk till those options expire and b) in this case does the creation/redemption process give the ETF manager the discretion to deliver whatever securities they desire?
Statistics: Posted by mmohan76 — Wed Jan 31, 2024 10:34 am — Replies 142 — Views 22072