Tax for options

Discussion in 'Options' started by wally_, Feb 18, 2003.

  1. What form(s) to use to report capital gains/losses from trading options? I did not trade options before 2002, so I am not sure about it, but gather that Schedule D is not enough.

    TIA.
     
  2. Options purchase and sales are part of Sch D. However, they are not included inthe 1099 given to you by broker at year end so if you have $3M of stock sales against $3m stock buys but you sold 1 call for $500 and bought it back for $100 . You need to put 3,000,500 as sales and 3,000,100 foir purchases. The bitch is the $500 is NOT in your 1099. Why? I don't know.
     
  3. deepitm

    deepitm

    Note that some options are considered 1256 contracts and need to be reported on form 6871. An example would be SPX or OEX options. The advantage is that you will receive favorable 60/40 tax treatment. Also be aware that 1256 contracts are marked to market at the end of the year.

    The following is direct from the IRS web site:

    "Section 1256 Contract
    A section 1256 contract is any:

    Regulated futures contract,
    Foreign currency contract,
    Nonequity option,
    Dealer equity option, or
    Dealer securities futures contract.
    Regulated futures contract. This is a contract that:

    Provides that amounts that must be deposited to, or can be withdrawn from, your margin account depend on daily market conditions (a system of marking to market), and
    Is traded on, or subject to the rules of, a qualified board of exchange. A qualified board of exchange is a domestic board of trade designated as a contract market by the Commodity Futures Trading Commission, any board of trade or exchange approved by the Secretary of the Treasury, or a national securities exchange registered with the Securities and Exchange Commission.
    Foreign currency contract. This is a contract that:

    Requires delivery of a foreign currency that has positions traded through regulated futures contracts (or settlement of which depends on the value of that type of foreign currency),
    Is traded in the interbank market, and
    Is entered into at arm's length at a price determined by reference to the price in the interbank market.
    Bank forward contracts with maturity dates that are longer than the maturities ordinarily available for regulated futures contracts are considered to meet the definition of a foreign currency contract if the above three conditions are satisfied.

    Special rules apply to certain foreign currency transactions. These transactions may result in ordinary gain or loss treatment. For details, see Internal Revenue Code section 988 and regulations sections 1.988-1(a)(7) and 1.988-3.

    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).

    Warrants based on a stock index that are economically, substantially identical in all material respects to options based on a stock index are treated as options based on a stock index.

    Cash-settled options. Cash-settled options based on a stock index and either traded on or subject to the rules of a qualified board of exchange are nonequity options if the Securities and Exchange Commission (SEC) determines that the stock index is broad based.

    This rule does not apply to options established before the SEC determines that the stock index is broad based.

    Listed option. This is any option that is traded on, or subject to the rules of, a qualified board or exchange (as discussed earlier under Regulated futures contract). A listed option, however, does not include an option that is a right to acquire stock from the issuer. "
     
  4. svsv

    svsv

    Are QQQ options considered as non-equity option, therefore they can be considered for MTM treatment? However, they don't comply with "Provides that amounts that must be deposited to, or can be withdrawn from, your margin account depend on daily market conditions (a system of marking to market), and
    Is traded on, or subject to the rules of, a qualified board of exchange."
     
  5. No.
    Search this site, we discussed this topic a few days ago.