Three speakers teamed up at RMC to discuss What Everyone Needs to Know About Listed Options Taxation today in Bonita Springs, FL.  Robert N. Gordon, President, Twenty-First Securities Corporation, Michael Leon, Senior Vice President, Northern Trust Wealth Management, Investment Advisory Solutions Group, and William Paul, Tax Partner all gave their perspectives on tax issues associated with listed option markets.

Highlights for each speaker’s presentation appear below –

Robert N. Gordon

  • Offered a comparison of ETFs, open end funds, unlisted index options and listed index options that can give a holder exposure to the S&P 500.
  • He notes that short term taxes are lower for listed index options, but long term gains are taxed at a lower rate for the other three vehicles.
  • He pointed out that structured notes have unfavorable tax structures when compared to a trader replicating a structured product’s return on their own using SPX Index options.

Michael Leon

  • Highlighted the features of 1256 contracts which offer tax advantages noting SPX Index options are categorized as 1256 contracts
  • He notes that the tax advantage helps make SPX options attractive for selling against or hedging equity portfolios
  • He did point out risks that include tracking error, suitability issues, margin costs, and the increased complexity of portfolio performance

William Paul

  • Spent some time discussing current tax legislation that may impact the option markets
  • Pointed out that both long call and long put positions have the same tax treatment
  • Spent time on 1256 contracts as well, noted that OTC options are not 1256 contracts and options on ETFs are generally not considered 1256 contracts