Guys, Would love to get some insight from anyone who knows how OIH options are treated and if they qualify for 1256. I know all the Oil Indexes(OIX,OSX,MGO and XOI) qualify under 1256. However, the liquidity in options for these is nothing compared to OIH. Thanks, Raza
Isn't OIH an ETF? Are the others actual indices? If that's the case, I read interpretation of the tax law that claims that options on wide-based indices are treated as 1256 contracts and options on ETF are not. The source is Greentax.com This whole issue is not carved in stone and is open to interpretations and court precedents. I know of efforts to include ETFs as 1256 contracts, but I'm not aware of any changes. I'll happy if someone in the forum has more precise information
Hi I do trade OIH actively mostly as naked call/outs. When I like to trade the stock instead of options I like the proxies like RIG,NBR,NOV,BJS ,WFT etc which mimic OIH most of the time! But some times OSX /XNG/XOI trade a bit diffrently (if not in the direction but atleast in the % up/down) OIH stock/options is the best vehicle on liquidity/pricing! So may be dont worry about tax treatment & earn more profits with out slippage in OIH options.
My reading of the IRS docs (#550 if memory serves) is that NONE of these qualify for 1256 treatment because they are not broad-based; they are industry specific. Here is the CBOE's list of broad-based indices: EYR - CBOE Asia 25 Index Options | Components EOR - CBOE Euro 25 Index Options | Components DJX - Dow Jones Industrial Average | Components Dow Jones Industrial Average LEAPS | Components DXL - Jumbo-DJX Index Options | Components NEW! OEX® - S&P 100® Index Options - American | Components OEX® - S&P 100® Index LEAPS - American | Components WEEKLYSSM - Short-Term S&P 100 Index Options | Components NEW! XEO® - European-style S&P 100® Index Options | Components XEO® - European-style S&P 100® LEAPS | Components SPX - S&P 500® Index Options | Components SPX - (Reduced-value) LEAPS | Components XSP - Mini-SPX Index Options | Components NEW! WEEKLYSSM - Short-Term S&P 500 Index Options | Components NEW! SPL - S&P Long-Dated Options | Components SML - S&P® SmallCap 600 Index Options | Components NDX - Nasdaq-100® Index Options | Components MNXSM - CBOE Mini-NDX Index Options | Components MML - CBOE Mini-NDX Long-Dated Options | Components GTC - GSTI⢠Composite Index Options | Components RUI - Russell 1000® Index | Components RLG - Russell 1000® Growth Index RLV - Russell 1000® Value Index RUT - Russell 2000® Index | Components RMN - Mini-Russell 2000® Index Options | Components RUO - Russell 2000® Growth Index RUJ - Russell 2000® Value Index RUA - Russell 3000® Index | Components RAG - Russell 3000® Growth Index RAV - Russell 3000® Value Index RMC - Russell Midcap® Index RDG - Russell Midcap® Growth Index RMV - Russell Midcap® Value Index NFT - Morgan Stanley Multinational Company Index | Components Here is the url where I found the list: http://www.cboe.com/Products/Cash-SettledIndexOptions.aspx
Tempus, CBOE's definition of "broad based" is not the same as the IRS definition. According to section 1a(25)(A) of the CEA, a security index is defined as broad based if it has 10 or more components. There are other limitations (such as: no single component could be higher than 30% of the index weight, the top 5 components should be less than 60%, etc.) My source is Robert's Green book.
I would be careful. Here is the IRS language: "A section 1256 contract is any: Regulated futures contract, Foreign currency contract, Nonequity option, Dealer equity option, or Dealer securities futures contract." ...and... "Nonequity option. This is any listed option (defined later) that is not an equity option. Nonequity options include debt options, commodity futures options, currency options, and broad-based stock index options. A broad-based stock index is based upon the value of a group of diversified stocks or securities (such as the Standard and Poor's 500 index). " The key word here is "diversified." I do trade OIH options but do so in an IRA account so that the tax implications are moot. See more at: http://www.irs.gov/publications/p550/ch04.html