I haven't had time to check, but my recollection of IRS regs is that rolling over an EFP will not generate a tax event or affect holding periods; and if you are not paying taxes MTM, then rolling over an EFP, or re-establishing an EFP or SSF position within 30 days after it expires, would be considered a wash sale.
I'll admit this is a new area for me. (BTW, thanks to whomever pointed out that SSFs are not ss. 1256 contracts.) I'm assuming not MTM. Are you saying that an EFP should be identified and treated as an sec 1092 identified straddle? I am beginning to think that a good guide would be quite handy! Incidentally, a wash sale does constitute a taxable event, just that a loss is disallowed and adjusted to the basis of the next transaction. A gain is immediately taxed. (Well, if there's a gain, it's not considered a wash sale.) This area I'm more familiar with.
I just took a peek at IRS Pub 550, to refresh my memory, and I realized that things are way more complicated than I remembered. SO PLEASE DISREGARD THE COMMENTS I PREVIOUSLY MADE ABOUT TAXES IN THIS THREAD. I don't have time to figure out this tax stuff right now. I'm also not an expert on taxes (obviously). And as somebody else just pointed out, a wash sale only occurs if the position is a loser.
Anyone know if there is a list for which stocks you can buy an EFP? Maybe the same as OneChicago offers?
Of course, I meant to say "sold 100 k of EFP" not bought. And I certainly do feel its worth getting this right, and I prefer to do it BEFORE pressing Transmit ;-). Yes, I see your point about the cost of moving in and out of the EFP. at .25% ANNUALIZED, it would be a fraction of that depending on the time to expiration.
Did we ever determine how this "first $10K" that doesn't earn interest works? In other words, if an account has $100K cash in it, and does $90K in EFPs, that leaves $10K cash. Does this $10K earn interest or not? I'm guessing it doesn't. Anyone? OldTrader
You are correct, in my opinion. I think one of the advantages of EFPs is that you can instead sell $100K in EFPs, and thereby earn a market rate of interest on your entire account, and completely avoid IB's failure to pay interest on the first $10K.
Here is a tip on how to cut your EFP transaction costs in half. Do not rollover your EFPs. Allow each to expire and to be exercised, and then, establish an entirely new EFP to replace it. If I correctly interpret IB's examples on its website, then IB charges no commission for an expiring EFP resulting in an exercise. The exercise is included in the 50 cent commission required to enter the EFP position. I'll probably have a good test for this by allowing some EFPs to expire this month, unless, for some reason, I decide I need to use the equity for something else. If I am correct, the cost of an EFP rollover would be $1 per contract (50 cents to exit the old contract, plus 50 cents to enter the new contract). The cost of an exercise followed by an entirely new EFP would be the more advantageous figure of 50 cents per contract (zero to expire, plus 50 cents to enter the new contract). Bid-ask spread costs would also be cut in half. If you rollover your EFP, you pay the half-spread twice for each rollover, resulting in total spread costs equal to the bid-ask spread. If you instead allow expiration of the EFP, and then enter an entirely new EFP, you only pay the half-spread once, thus cutting your spread costs in half. So I think this is how to cut in half your EFP transaction costs (commissions plus spread costs). An exception to this might arise when you find a particularly good bargain on an EFP, one which you do not expect to continue into the future. If the bargain is so good that it justifies paying double transaction costs, then in this special situation, you might want to rollover into this momentarily good deal, locking in this special price, instead of waiting for expiration when you expect that this special price will no longer be available.
Rayl- There was a problem with our confirmation screen in TWS which reported EFP commissions of $1 per EFP instead of our actual commission of $.50 per EFP. Please rest assured that you were only charged $.50 on your statement and the confirmation screen issue is being fixed. Sorry for any inconvenience. -IBSteve
Thanks -- I heard that from another IB person as well (though not from customer service! You guys must be overwhelmed w/questions about EFPs.)