Tuesday, February 2, 2010

RE: [TheOptionClub.com] Some clarification on 1256 tax treatment

 

You might want to check out traders accounting (tradersaccounting.com) or BOSS (bossoffice.com) they both strongly recommend against trader status,  for several reason, amongst them if you work a regular job you have to make more trading than you do on your regular job in order to qualify for trader status.




 

To: OptionClub@yahoogroups.com
From: texasgig@gmail.com
Date: Tue, 2 Feb 2010 21:32:43 -0500
Subject: Re: [TheOptionClub.com] Some clarification on 1256 tax treatment

 
Hi,

Thanks for the info.  Does this apply to all tax filers, or only those under trader status?

Does anyone have thoughts on switching to trader status, by the way (pros/cons)?  I'd guess that mark-to-market reduces hassle of record-keeping, and one also gets to write-off expenses, correct?  But are there drawbacks?

I'm wondering how to establish trader status -- whether there are certain trade activity minimums, and whether it requires an accountant or lawyer initially, and how much that would cost.

Thanks!

On Mon, Feb 1, 2010 at 7:06 PM, nahorowitz <nhorowitz@axeus.com> wrote:
 
Some clarification on 1256 tax treatment. There are some grey areas in the law regarding 1256 treatment. For those of you who don't know about 1256, it is IRS rule that gives 60% long term/40% short term tax treatment to broad-based index options, so this is a big tax-saver for folks who collect premium and would otherwise be taxed 100% short term rate.

All broad-based cash settled index options for sure get 1256 tax treatment. So this includes all index options, as well as any other obscure cash settled options. They must meet the definition of "Broad-based" which basically means 10 or more constituents. Narrow-based indexes (9 constituents or less) do not qualify.

Now the grey area in the law has to do with options on ETFs that mirror broad-based indexes. So does SPY qualify for 1256 treatment? Several of the CPAs who are expert in trader taxation (e.g., Robert Green of GreenTraderTax.com) take the position that options on broad-based index ETFs DO qualify for 1256 treatment. But there is no law or IRS ruling or case law directly on this point, but there are some strong arguments in favor of this position.

One of the tax matching software programs called GainsKeeper keeps an up-to-date list of ETFs that they believe qualify for 1256 treatment of their options. I know that SPY and UNG are on their list. The product manager told me that the IRS uses Gainskeeper on their side, so if your ETF symbol is on Gainskeeper's list you may be quite safe since the IRS will be checking that same list on their side.

Now that ThinkOrSwim has merged with Ameritrade and Ameritrade was a Gainskeep client, TOS now offers Gainskeeper Gain/Loss reports on the TOS website. Several other brokers also offer Gainskeeper reports for free. If the GainsKeeper reports says "Mixed" in the holding period column, then those are the symbols that they say qualify for 1256 treatment. I know SPY and UNG, which are both broad based index ETFs, have my options trades showing "mixed" on my Gainskeeper report.





__._,_.___
The goal of TheOptionClub is to provide a forum for members to work together for the purpose of furthering our individual understanding option trading.  All messages and postings, and any materials circulated are provided for discussion and educational purposes only.  No statement contained in any materials from TheOptionClub should be considered a recommendation to buy or sell a security or to provide investment, legal or tax advice.  All investors are encouraged to consult a qualified professional before trading in any security.  Stock and option trading involves risk and is not suitable for most people.  There is no guarantee that any information provided is accurate and, may in fact, be wrong.  It is understood that the participants in TheOptionClub have varying backgrounds and degrees of experience in option trading, and that regardless of experience each member is considered a student.  As such, any information distributed through TheOptionClub should be considered with a critical mind and not relied upon as an authoritative source.

To unsubscribe from TheOptionClub, send an email to:
OptionClub-unsubscribe@yahoogroups.com
.

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Posted by at No comments:

Re: [TheOptionClub.com] Some clarification on 1256 tax treatment

 

Hi,

Thanks for the info.  Does this apply to all tax filers, or only those under trader status?

Does anyone have thoughts on switching to trader status, by the way (pros/cons)?  I'd guess that mark-to-market reduces hassle of record-keeping, and one also gets to write-off expenses, correct?  But are there drawbacks?

I'm wondering how to establish trader status -- whether there are certain trade activity minimums, and whether it requires an accountant or lawyer initially, and how much that would cost.

Thanks!

On Mon, Feb 1, 2010 at 7:06 PM, nahorowitz <nhorowitz@axeus.com> wrote:
 

Some clarification on 1256 tax treatment. There are some grey areas in the law regarding 1256 treatment. For those of you who don't know about 1256, it is IRS rule that gives 60% long term/40% short term tax treatment to broad-based index options, so this is a big tax-saver for folks who collect premium and would otherwise be taxed 100% short term rate.

All broad-based cash settled index options for sure get 1256 tax treatment. So this includes all index options, as well as any other obscure cash settled options. They must meet the definition of "Broad-based" which basically means 10 or more constituents. Narrow-based indexes (9 constituents or less) do not qualify.

Now the grey area in the law has to do with options on ETFs that mirror broad-based indexes. So does SPY qualify for 1256 treatment? Several of the CPAs who are expert in trader taxation (e.g., Robert Green of GreenTraderTax.com) take the position that options on broad-based index ETFs DO qualify for 1256 treatment. But there is no law or IRS ruling or case law directly on this point, but there are some strong arguments in favor of this position.

One of the tax matching software programs called GainsKeeper keeps an up-to-date list of ETFs that they believe qualify for 1256 treatment of their options. I know that SPY and UNG are on their list. The product manager told me that the IRS uses Gainskeeper on their side, so if your ETF symbol is on Gainskeeper's list you may be quite safe since the IRS will be checking that same list on their side.

Now that ThinkOrSwim has merged with Ameritrade and Ameritrade was a Gainskeep client, TOS now offers Gainskeeper Gain/Loss reports on the TOS website. Several other brokers also offer Gainskeeper reports for free. If the GainsKeeper reports says "Mixed" in the holding period column, then those are the symbols that they say qualify for 1256 treatment. I know SPY and UNG, which are both broad based index ETFs, have my options trades showing "mixed" on my Gainskeeper report.


__._,_.___
The goal of TheOptionClub is to provide a forum for members to work together for the purpose of furthering our individual understanding option trading.  All messages and postings, and any materials circulated are provided for discussion and educational purposes only.  No statement contained in any materials from TheOptionClub should be considered a recommendation to buy or sell a security or to provide investment, legal or tax advice.  All investors are encouraged to consult a qualified professional before trading in any security.  Stock and option trading involves risk and is not suitable for most people.  There is no guarantee that any information provided is accurate and, may in fact, be wrong.  It is understood that the participants in TheOptionClub have varying backgrounds and degrees of experience in option trading, and that regardless of experience each member is considered a student.  As such, any information distributed through TheOptionClub should be considered with a critical mind and not relied upon as an authoritative source.

To unsubscribe from TheOptionClub, send an email to:
OptionClub-unsubscribe@yahoogroups.com
.

__,_._,___
Posted by at No comments:

Monday, February 1, 2010

[TheOptionClub.com] Some clarification on 1256 tax treatment

 

Some clarification on 1256 tax treatment. There are some grey areas in the law regarding 1256 treatment. For those of you who don't know about 1256, it is IRS rule that gives 60% long term/40% short term tax treatment to broad-based index options, so this is a big tax-saver for folks who collect premium and would otherwise be taxed 100% short term rate.

All broad-based cash settled index options for sure get 1256 tax treatment. So this includes all index options, as well as any other obscure cash settled options. They must meet the definition of "Broad-based" which basically means 10 or more constituents. Narrow-based indexes (9 constituents or less) do not qualify.

Now the grey area in the law has to do with options on ETFs that mirror broad-based indexes. So does SPY qualify for 1256 treatment? Several of the CPAs who are expert in trader taxation (e.g., Robert Green of GreenTraderTax.com) take the position that options on broad-based index ETFs DO qualify for 1256 treatment. But there is no law or IRS ruling or case law directly on this point, but there are some strong arguments in favor of this position.

One of the tax matching software programs called GainsKeeper keeps an up-to-date list of ETFs that they believe qualify for 1256 treatment of their options. I know that SPY and UNG are on their list. The product manager told me that the IRS uses Gainskeeper on their side, so if your ETF symbol is on Gainskeeper's list you may be quite safe since the IRS will be checking that same list on their side.

Now that ThinkOrSwim has merged with Ameritrade and Ameritrade was a Gainskeep client, TOS now offers Gainskeeper Gain/Loss reports on the TOS website. Several other brokers also offer Gainskeeper reports for free. If the GainsKeeper reports says "Mixed" in the holding period column, then those are the symbols that they say qualify for 1256 treatment. I know SPY and UNG, which are both broad based index ETFs, have my options trades showing "mixed" on my Gainskeeper report.

__._,_.___
The goal of TheOptionClub is to provide a forum for members to work together for the purpose of furthering our individual understanding option trading.  All messages and postings, and any materials circulated are provided for discussion and educational purposes only.  No statement contained in any materials from TheOptionClub should be considered a recommendation to buy or sell a security or to provide investment, legal or tax advice.  All investors are encouraged to consult a qualified professional before trading in any security.  Stock and option trading involves risk and is not suitable for most people.  There is no guarantee that any information provided is accurate and, may in fact, be wrong.  It is understood that the participants in TheOptionClub have varying backgrounds and degrees of experience in option trading, and that regardless of experience each member is considered a student.  As such, any information distributed through TheOptionClub should be considered with a critical mind and not relied upon as an authoritative source.

To unsubscribe from TheOptionClub, send an email to:
OptionClub-unsubscribe@yahoogroups.com
.

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Posted by at No comments:

[ConservativeOptionStrategies] Re: Iron Condors - Conservative Strategy?

 

It won't take long to understand the difference between an 80% 'theoretical probability' of front month options expiring worthless, and the reality of a trending market's impact upon the cost of buying back those short puts and calls.

__._,_.___
.

__,_._,___
Posted by at No comments:

[TheOptionClub.com] 1256 Tax Treatment

 

Some clarification on 1256 tax treatment. There are some grey areas in the law regarding 1256 treatment.

All broad-based cash settled index options for sure get 1256 tax treatment. So this includes all index options, as well as any other obscure cash settled options. Broad-based means 10 or more constituents. Narrow-based (9 or less) do not qualify.

Now the grey area in the law has to do with options on ETFs that mirror indexes. So does SPY qualify for 1256 treatment? Several of the expert trader CPAs (E.G.. Robert Green of GreenTraderTax.com) take the position that options on broad-based index ETFs DO qualify for 1256 treatment. But there is no law or IRS ruling or case law directly on this point, but there are some strong arguments in favor of this position.

One of the tax matching software programs called GainsKeeper keeps an up-to-date list of ETFs that qualify for 1256 treatment of their options by their opinion. I know that SPY and UNG are on their list. The product manager told me that the IRS uses Gainskeeper on their side, so if your ETF symbol is on Gainskeeper's list you may be quite safe since the IRS will be checking that same list on their side.

Now that ThinkOrSwim has merged with Ameritrade, TOS now has Gainskeeper Gain/Loss reports on the TOS website. If GainsKeeper says "Mixed" in the holding period column, then those are the symbols that they say qualify for 1256 treatment. I know SPY and UNG, which are both broad based index ETFs, have my options trades showing "mixed" on my Gainskeeper report.

__._,_.___
The goal of TheOptionClub is to provide a forum for members to work together for the purpose of furthering our individual understanding option trading.  All messages and postings, and any materials circulated are provided for discussion and educational purposes only.  No statement contained in any materials from TheOptionClub should be considered a recommendation to buy or sell a security or to provide investment, legal or tax advice.  All investors are encouraged to consult a qualified professional before trading in any security.  Stock and option trading involves risk and is not suitable for most people.  There is no guarantee that any information provided is accurate and, may in fact, be wrong.  It is understood that the participants in TheOptionClub have varying backgrounds and degrees of experience in option trading, and that regardless of experience each member is considered a student.  As such, any information distributed through TheOptionClub should be considered with a critical mind and not relied upon as an authoritative source.

To unsubscribe from TheOptionClub, send an email to:
OptionClub-unsubscribe@yahoogroups.com
.

__,_._,___
Posted by at No comments:

RE: [TheOptionClub.com] Calendars and Iron Condors

 

Chet,

 

See my response below.  You are correct these are just my opinion and I am not any type of professional or advisor.

 

Good luck,

Renee

 

From: OptionClub@yahoogroups.com [mailto:OptionClub@yahoogroups.com] On Behalf Of Gayatri Maskeri
Sent: Monday, February 01, 2010 3:11 AM
To: OptionClub@yahoogroups.com
Subject: Re: [TheOptionClub.com] Calendars and Iron Condors

 

 

Hi Renee,
Couple of questions:
1.  I too am a fan of Dan Sheridan like you and am looking at different possibilities for learning/taking a course.  You chose to go with SJOptions. So, here are my questions: (A)  Why did you choose SJOptions, how long have you been with them and how do you like it so far? SJOptions was less expensive and did not have any time limits.  Morris is dedicated to teaching and experimenting with new options trades.  


    (B)  Do you place real trades with their help and what kind of gains do they really get with their Risk free trades? Morris teaches his techniques in paper money accounts. However, I place real trades that mimic his techniques but he does not give you the trade.  Additionally, we often go over students real trades and adjustment options in class.  But in general, he wants to teach you to fish, not hand you a fish.
2.  What are the tax advantages of going with the index trades?  And the 1265 you mention - Sorry for asking a silly question but I would appreciate your response if it is not too complex and I will not hold you reponsible for your statements as I recognize that you are not my accountant - you don't have to worry about that.  I am just trying to understand.

The tax rate on the 1265 contract items is 60% long term 40% short term –no matter the length of time – instead of 100% short term on individual stocks and ETFs.


Thanks!
Chet.

 

From: "Reneehug@Comcast.net" <Reneehug@Comcast.net>
To: leobusc@yahoo.com
Cc: OptionClub@yahoogroups.com
Sent: Sun, January 31, 2010 5:16:34 PM
Subject: Re: [TheOptionClub.com] Calendars and Iron Condors

 

Leo,

 

I am also a big fan of Dan Sheridans but have chose instead to study with San Jose Options.  But your answer your questions... . I prefere Iron Condors, as long as the volalitility is high enough,  because it makes sense to me to sell a decaying asset instead of buying one.  I prefer the RUT because it has higher IV but takes more to move it since 2000 stocks making up the index.  I also put IC's on SPX & NDX but my favorite is the RUT.  I use these 3 indices because of the tax advantages of 1265 contracts.  I found the trick in not to get greedy.  To be happy with making 2/3rd of the initial credit and moving on.

 

Here's wishing you success with your trades.

Renee

 


----- Original Message -----
From: "leobusc" <leobusc@yahoo. com>
To: OptionClub@yahoogro ups.com
Sent: Sunday, January 31, 2010 2:54:51 PM GMT -05:00 US/Canada Eastern
Subject: [TheOptionClub. com] Calendars and Iron Condors

 

I am thinking that I want to spend more of my efforts on Index Calendars and Index Iron Condors.

I have been watching as many of Dan Sheridan's videos (including the recent one on Option Club Thanks Chris)as I can find. So I know I have to be able to adjust on a timely basis.

For example Dan suggests a first adjustment on an Calendar when you are down 20% of your initial debit spread by replacing half of your calendars with calendars at the strike closest to the breakeven price.

It seems if I can remain disciplined this plan can work even in a volatile market.

My question are:

Do you prefer Calendars or Iron Condors, if you prefer one more than the other why?

What are your favorite indexes (SPY, SPX, RUT, DIA etc)and why?

Also, there are only 20 days left in February period would you play Feb or just wait a week and begin with a March Calendar?

 

__._,_.___
The goal of TheOptionClub is to provide a forum for members to work together for the purpose of furthering our individual understanding option trading.  All messages and postings, and any materials circulated are provided for discussion and educational purposes only.  No statement contained in any materials from TheOptionClub should be considered a recommendation to buy or sell a security or to provide investment, legal or tax advice.  All investors are encouraged to consult a qualified professional before trading in any security.  Stock and option trading involves risk and is not suitable for most people.  There is no guarantee that any information provided is accurate and, may in fact, be wrong.  It is understood that the participants in TheOptionClub have varying backgrounds and degrees of experience in option trading, and that regardless of experience each member is considered a student.  As such, any information distributed through TheOptionClub should be considered with a critical mind and not relied upon as an authoritative source.

To unsubscribe from TheOptionClub, send an email to:
OptionClub-unsubscribe@yahoogroups.com
.

__,_._,___
Posted by at No comments:

Re: [TheOptionClub.com] Calendars and Iron Condors

 

Hi Renee,
Couple of questions:
1.  I too am a fan of Dan Sheridan like you and am looking at different possibilities for learning/taking a course.  You chose to go with SJOptions. So, here are my questions: (A)  Why did you choose SJOptions, how long have you been with them and how do you like it so far?
    (B)  Do you place real trades with their help and what kind of gains do they really get with their Risk free trades?
2.  What are the tax advantages of going with the index trades?  And the 1265 you mention - Sorry for asking a silly question but I would appreciate your response if it is not too complex and I will not hold you reponsible for your statements as I recognize that you are not my accountant - you don't have to worry about that.  I am just trying to understand.
Thanks!
Chet.

From: "Reneehug@Comcast.net" <Reneehug@Comcast.net>
To: leobusc@yahoo.com
Cc: OptionClub@yahoogroups.com
Sent: Sun, January 31, 2010 5:16:34 PM
Subject: Re: [TheOptionClub.com] Calendars and Iron Condors

 

Leo,

 

I am also a big fan of Dan Sheridans but have chose instead to study with San Jose Options.  But your answer your questions... . I prefere Iron Condors, as long as the volalitility is high enough,  because it makes sense to me to sell a decaying asset instead of buying one.  I prefer the RUT because it has higher IV but takes more to move it since 2000 stocks making up the index.  I also put IC's on SPX & NDX but my favorite is the RUT.  I use these 3 indices because of the tax advantages of 1265 contracts.  I found the trick in not to get greedy.  To be happy with making 2/3rd of the initial credit and moving on.

 

Here's wishing you success with your trades.

Renee

 


----- Original Message -----
From: "leobusc" <leobusc@yahoo. com>
To: OptionClub@yahoogro ups.com
Sent: Sunday, January 31, 2010 2:54:51 PM GMT -05:00 US/Canada Eastern
Subject: [TheOptionClub. com] Calendars and Iron Condors

 

I am thinking that I want to spend more of my efforts on Index Calendars and Index Iron Condors.

I have been watching as many of Dan Sheridan's videos (including the recent one on Option Club Thanks Chris)as I can find. So I know I have to be able to adjust on a timely basis.

For example Dan suggests a first adjustment on an Calendar when you are down 20% of your initial debit spread by replacing half of your calendars with calendars at the strike closest to the breakeven price.

It seems if I can remain disciplined this plan can work even in a volatile market.

My question are:

Do you prefer Calendars or Iron Condors, if you prefer one more than the other why?

What are your favorite indexes (SPY, SPX, RUT, DIA etc)and why?

Also, there are only 20 days left in February period would you play Feb or just wait a week and begin with a March Calendar?


__._,_.___
The goal of TheOptionClub is to provide a forum for members to work together for the purpose of furthering our individual understanding option trading.  All messages and postings, and any materials circulated are provided for discussion and educational purposes only.  No statement contained in any materials from TheOptionClub should be considered a recommendation to buy or sell a security or to provide investment, legal or tax advice.  All investors are encouraged to consult a qualified professional before trading in any security.  Stock and option trading involves risk and is not suitable for most people.  There is no guarantee that any information provided is accurate and, may in fact, be wrong.  It is understood that the participants in TheOptionClub have varying backgrounds and degrees of experience in option trading, and that regardless of experience each member is considered a student.  As such, any information distributed through TheOptionClub should be considered with a critical mind and not relied upon as an authoritative source.

To unsubscribe from TheOptionClub, send an email to:
OptionClub-unsubscribe@yahoogroups.com
.

__,_._,___
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