Box-spread ETFs gain traction despite Treasury tax scrutiny

Exchange-traded funds using options box spreads are gaining traction as Wall Street bets the tax strategy will survive scrutiny from the US Treasury, Bloomberg reported.

Box spreads combine calls and puts to create a largely risk-neutral position that can return roughly as much as a Treasury bill. Because the return comes from options appreciation rather than interest, investors may defer taxes through the ETF structure.

GraniteShares launched the Short Term Box ETF on Tuesday, while the Xfunds 1-3 Month BOX ETF began trading the previous week. Box-spread ETFs have grown to about $16 billion in assets.

Treasury officials said in July that some strategies in the tax-focused market could be potentially abusive. The funds’ supporters argue the structure offers investors a more tax-efficient way to hold short-term assets.