# Trading options in Australia



## Seqman (25 April 2017)

Hi all . I have just joined the forum. I have been trading on and off for a couple of years just mainly doing Calls and Puts on the US market through optionsXpress. Work commitments seem to get in the way of spending more time than I would like to trading and learning. I recently decided that I wanted to get back to being more active and doing more and in particular Vertical spreads, cash secured puts and covered calls as a start. So, I thought I would try trading in the Aussie market being home and the like, so I opened and account and got approval from ANZ Share trading to trade advanced options but the platform is so hard to work after using OX I can’t even find the chains. Wondering what anyone else does and is it even worth trading options in Oz as it seems thus far very limited.


----------



## Warriortrader (26 April 2017)

Welcome...
Trading Aussie Stock Options is a pain...almost no liquidity and the local brokers charge you astronomical commissions...
OptionsXpress is ok to do what you want to do...CC, Puts and Spreads...
Good Luck


----------



## Virge666 (26 April 2017)

ASX,

You have a couple of options but IB will be the best of the bunch.

$1 a side for contracts + $2-6 for a share trade.

Software aint bad but it isnt options based.  Options are sort of an afterthought.


----------



## Sonny S H Tan (2 May 2017)

I am planning to migrate to Australia. I now trade Options using Interactive Brokers, OptionXpress and TD Ameritade. After making some enquiries, I am told the fdollowing:-
(1) TD Ameritrade (ThinkOrSwim) is no longer operating in Australia
(2) Interative Brokers do not provide margin for Australian Residents due to Australian Regulations
(3) OptionsXpress is still available in Australia. Can anyone confirm whether they provide margin?


----------



## Sonny S H Tan (2 May 2017)

Sonny S H Tan said:


> I am planning to migrate to Australia. I now trade Options using Interactive Brokers, OptionXpress and TD Ameritade. After making some enquiries, I am told the fdollowing:-
> (1) TD Ameritrade (ThinkOrSwim) is no longer operating in Australia
> (2) Interative Brokers do not provide margin for Australian Residents due to Australian Regulations
> (3) OptionsXpress is still available in Australia. Can anyone confirm whether they provide margin?



I am interested in trading options in the US market. Does anyone know of any regulatory restrictions?


----------



## Warriortrader (2 May 2017)

OptionsXpress offfers you margin as does IB. With IB you need to have a business account...


----------



## Sonny S H Tan (2 May 2017)

Warriortrader said:


> OptionsXpress offfers you margin as does IB. With IB you need to have a business account...



For OX can you get margin for Individual Australian Resident?


----------



## Warriortrader (2 May 2017)

Yes, I had an OX account with margin....I closed my account with them in early 2026


----------



## Sonny S H Tan (2 May 2017)

Warriortrader said:


> Yes, I had an OX account with margin....I closed my account with them in early 2026



Thanks Warriortrader. You mean 2016? You don't mind me asking, "Why close OX?" Is there a better alternative. Thanks in advance.


----------



## Warriortrader (3 May 2017)

Hi..sorry, I did mean 2016....apologies. My reason for closing OX was purely commercial...I was getting better commissions elsewhere, but the difference in platforms was negligible!! For Option Traders, OX is really poor...pity


----------



## Sharkman (4 May 2017)

I still trade ASX options regularly, around 150-200 trades a year, though I'm guessing a lot of people here have given up on them due to the ugly spreads and stuff like TOS pulling up stumps, IB no longer offering margin etc. And they're probably right, the spreads have gotten worse over the last few years, so the bulk of my trades these days are cash covered puts and covered calls. Less spreads to cross and since it's only one leg (which I usually let run to expiry and deal with the assignment if I have to) I can just walk away if they don't give me a good fill.

Vertical/calendar spreads have become very annoying to do in the last 2-3 years. What I've often found is that while I'll get a fill close to the mid for the long gamma leg (which I always do first), when I try to put the short gamma leg on afterwards, it's very hard to get a good fill, I end up having to cross most of the spread to get it. I could almost swear the MMs have reprogrammed their bots recently to that end, I get the feeling that the bot is now scanning the recent filled orders across the whole option chain, and when it thinks an open order is someone trying to execute the second leg of a strategy, it goes into scrooge mode and refuses to give a decent fill to that order.

I trade thru IB using a company trust so I still have access to margin. Commissions aren't a problem at all. 30c per contract for trading, 27.5c per contract for exercise/assignment. Definitely don't use one of the big banks' brokerages if you're going to do ASX options though, you will get ripped off.


----------



## traderjo (5 May 2017)

I trade thru IB using a company trust so I still have access to margin. [/QUOTE]
Hi Sharkman, could you please elaborate, do you mean you have Australian Company or US registered Company which allows you to have IB's Margin facility? also what you mean by "Company Trust" is it a company or a trust?..
Mr Tan
TOS: correct but would TOS let you trade if opening an a/c under the name of a US company ?
IB: No margin a/c and does not allow FX trading or US CFDs either for Australian residents!
OE: allows all but my info is old please check latest


----------



## Sharkman (6 May 2017)

traderjo said:


> I trade thru IB using a company trust so I still have access to margin.



Hi Sharkman, could you please elaborate, do you mean you have Australian Company or US registered Company which allows you to have IB's Margin facility? also what you mean by "Company Trust" is it a company or a trust?..
Mr Tan
TOS: correct but would TOS let you trade if opening an a/c under the name of a US company ?
IB: No margin a/c and does not allow FX trading or US CFDs either for Australian residents!
OE: allows all but my info is old please check latest[/QUOTE]

Company is trustee of the trust. I control the company. So my IB account is registered as <company name> as trustee for <trust name>, therefore it still gets allowed to use margin. I'm not sure if they allow margin for an individual as trustee for a trust. Even with a company trust account, IB still won't let me do any FX (that restriction applies to all Aust IB accounts), but I never did that much FX anyway so it doesn't really bother me.

You should definitely speak to an accountant before you set stuff like this up, as this sort of thing definitely depends on personal circumstances. What works for me might not work for you!


----------



## KingJim007 (9 November 2019)

Most discouraging to start options trading in Aus  
So best option is to use US platform and go through all the tax and accounting headaches?


----------



## Value Collector (10 November 2019)

KingJim007 said:


> Most discouraging to start options trading in Aus
> So best option is to use US platform and go through all the tax and accounting headaches?




What did you find discouraging?


----------



## KingJim007 (10 November 2019)

Value Collector said:


> What did you find discouraging?




Well don't get me wrong there is still some good info in this thread and I thank the posters for their info. Just reading around and it seems many people believe that post GFC that options trading in Oz has become more difficult, worse spreads, some issues with fills with some advanced trades, issues with some brokers leaving the market, expensive fees eating into trades. I'm sure with some experience Options trading in Oz can get some good results, it just seems a bit easier with larger markets like US but that has it's own issues around trading as a company and tax and accounting issues.

Overall I am still positive about options, still on the learning curve and appreciating all the info from experienced traders!


----------



## Value Collector (10 November 2019)

KingJim007 said:


> Well don't get me wrong there is still some good info in this thread and I thank the posters for their info. Just reading around and it seems many people believe that post GFC that options trading in Oz has become more difficult, worse spreads, some issues with fills with some advanced trades, issues with some brokers leaving the market, expensive fees eating into trades. I'm sure with some experience Options trading in Oz can get some good results, it just seems a bit easier with larger markets like US but that has it's own issues around trading as a company and tax and accounting issues.
> 
> Overall I am still positive about options, still on the learning curve and appreciating all the info from experienced traders!




I haven’t ever traded USA options, so I don’t really know anything about the benefits of that market vs the Aussie market.

But I have been using Aussie options as an extension of my regular longterm value investing Operation and it’s become a pretty decent profit centre of my portfolio.

I think if your underlying strategy is sound, there is no real pitfalls I can see in the Aussie market.

however I am running a pretty simplistic strategy that’s bolted onto my long term buy and hold operation, and am only an options seller, so it may be different if you are a buyer of options or doing more fancy things that are to complicated for my monkey brain.


----------



## Sharkman (10 November 2019)

KingJim007 said:


> Well don't get me wrong there is still some good info in this thread and I thank the posters for their info. Just reading around and it seems many people believe that post GFC that options trading in Oz has become more difficult, worse spreads, some issues with fills with some advanced trades, issues with some brokers leaving the market, expensive fees eating into trades. I'm sure with some experience Options trading in Oz can get some good results, it just seems a bit easier with larger markets like US but that has it's own issues around trading as a company and tax and accounting issues.
> 
> Overall I am still positive about options, still on the learning curve and appreciating all the info from experienced traders!




it has become slightly more difficult, but not excessively so if considering solely options over the top 20.

the spreads being shown to the market do seem to have grown wider over the last few years, but often that's not an issue. you don't hit the bid or offer and cross the whole spread every trade, that's a sure way to ruin when trading ASX options.

don't be put off by a wide spread - start by chucking in an order on your side of the spread. it probably won't get filled, but i often do it anyway, as on very rare occasions in the past (i would say probably about 1% of the time), i have managed to squeeze a few hundred extra bucks of premium out of someone willing to cross to my side of the spread. but to save time you might want to just start at the mid.

then every few seconds, you push your order one tick towards their side of the spread until you get filled. if you don't get filled at a decent level (my rule of thumb is 2 ticks their side of the mid, sometimes i vary this depending on how badly i want a fill, but that's up to the individual trader), then you take the order off, walk away and try again later. there's no cancellation fee in Aust, you can freely do this as many times as you like.

if you do this on front month near the money options on the top 20, there's a very good chance you will get filled within 2 ticks of the mid, unless there are extraordinary market circumstances in effect at the time (Brexit, US elections etc). it becomes less likely as you get further away from ATM and with longer and longer expiries.

for eg. if i get filled at 0.75 (and 0.75 represents an IV that i'm satisfied more or less represents the risk i'm taking on), i don't care if the spread that was shown to the market was 0.50/1.00 or 0.74/0.76. makes no difference to me once i've been filled. i suspect at least part of the reason the MM shows wide spreads is to try and trap people desperate for a fill and/or people who are unaware that you can work the spread as described above.

fees are not an issue with IB - it's still 30c per contract, minimum $2. the more significant issue is that unlike what i wrote above a couple of years ago, Aust traders no longer have access to margin with the forced migration from IB LLC to IB Aust. i find that, more than the spreads or the fees, is what's crimping my option trading, as i can no longer dip into margin to execute my sell naked puts - take assignment - sell covered calls - take assignment - rinse and repeat strategy. i have to either cash collateralise, or roll/close out the naked puts at expiry instead of taking the assignment.


----------



## Sharkman (10 November 2019)

Value Collector said:


> I haven’t ever traded USA options, so I don’t really know anything about the benefits of that market vs the Aussie market.




neither have i, but i have done a bit of research into it in the past, and may dabble in it once i'm retired. from what i saw, there are some obvious benefits of the US options market.

the big one is that the spreads are really good, i mean really really good vs Aust options. on underlyings that are very dollar expensive compared to the largest caps we have in Aust, i was seeing spreads like 3.02/3.04. our closest equivalent is probably CSL, where you will typically face spreads like 2.70/3.50. liquidity is probably much better in the US as well.

i know i wrote above that spreads often aren't too much of an issue as you can still get close to the mid even on a large spread, but that doesn't happen all the time, and derivatives over different underlyings often exhibit different characteristics. in particular i have had lots of trouble getting decent fills for CSL options in the past, if CSL had 3.02/3.04 spreads, i'd just hit the offer to get it done immediately and move on.

in the US, 1 contract is typically over 100 units of underlying, as it is here. however, the underlyings tend to be a lot more expensive over there. what's the difference between 100 units of a $1000 stock vs 10000 units of a $10 stock? there isn't much if trading the stocks themselves, but when it comes to options trading, there is a small but noticeable difference.

firstly, IB charges commissions based on how many contracts you trade, so with expensive underlyings you don't need as many contracts for the same exposure, keeping your commissions down.

the second difference is somewhat obscure, but over the years of trading Aust options, i've had this happen to me several times. i'd be trying to get a fill on say 100 NAB contracts, then someone comes along and takes out 2 or 3 of my order, then the market moves and i have to move my bid/offer in a bit for the remaining 97 or 98 contracts. that creates *another* order, meaning i have to pay extra brokerage on the 2 or 3 contracts, and it results in multiple parcels, making record keeping more of a hassle. whereas in the US, even 1 contract on a dollar expensive stock is a decent sized chunk of exposure. i imagine that would help prevent this sort of thing from happening. notably - this never happened to me before they changed the lot size from 1000 to 100 back in 2011 (although i was doing smaller trades back then, so that could've had something to do with it as well).


----------



## wayneL (11 November 2019)

IME if flogging calls on your holdings or cash covered puts as part of a buy and hold strategy, Oz options are fine... That's how I'm playing it ATM, pretty much exactly like @Sharkman.

But be aware that Oz registered traders (market makers) are some of the most cunning and ruthless traders on the planet. If your strategy involves trading out of spreads and whatnot, like sometimes when you really *need to, you will be rorted like never before.


----------



## cutz (11 November 2019)

wayneL said:


> But be aware that Oz registered traders (market makers) are some of the most cunning and ruthless traders on the planet. If your strategy involves trading out of spreads and whatnot, like sometimes when you really *need to, you will be rorted like never before.




Yeah, I've been caught out in the past on expiry day before the close, for this reason I'm normally squared up min a week out.


----------



## Sharkman (12 November 2019)

cutz said:


> Yeah, I've been caught out in the past on expiry day before the close, for this reason I'm normally squared up min a week out.




the tradeoff is by doing that you miss out on that sweet final week decay. this is why i'm finding the loss of IB margin quite annoying. i try to set my cash covered put strikes at where i think there's a decent support level - provided the strike is at least a 25 delta (maybe 35-40 delta in lower vol underlyings such as the banks).

so ideally i want them to expire 1c OTM, then i can sell ATM puts at the same strike the next day. if i did in fact pick the strike well and the stock falls close to that level and proceeds to test the support level over a period of a few days, then it's quite possible it will be hovering around the strike on expiry day and i don't know which way it's going to go.

in the past i'd be stoked if that happened, i could collect that insane final day theta (in the past i have seen high vol options eg. RIO, WPL, especially QBE back when they were lurching from crisis to crisis being offered at nearly 0.5% of the stock price on expiry day) and if i get assigned, i just take delivery using margin then turn around and sell covered calls over it soon after.

but now if i don't have the cash available to take the assignment, i have to close out on expiry day if there's a chance it will be assigned, otherwise IB now triggers a margin call and liquidates some of your holdings at random to get your cash balance back above zero. thus not only losing out on the final day theta, but having to potentially cross a nasty spread to close out. and i'm a bit hesitant to throw more funds into my IB account because we don't get SIPC protection anymore. so i fully cash collateralise now just to make things easier to manage.

interested to hear how you (and WayneL) are dealing with the loss of margining. did it affect your strategy and did you need to adjust your strategy to account for it? am kinda assuming you're both trading thru IB and were also forced to migrate to IB Aust thus losing your margin facility, but maybe that's incorrect?

as for my own adjustments, since the loss of IB margin earlier this year, i find myself sometimes going for zero cost/small credit 1 by 2 ratio put spreads (with the lower strike at where i think support is) instead. given that i can't collateralise as many short gamma positions these days, the 1 by 2 ratio put spread has more potential upside than a straight cash covered put at the lower strike (but with lower probability).


----------



## cutz (12 November 2019)

Hi Sharkman.

In my case I only spread, don't do naked puts with IB, since the changeover my margining has improved, especially with the XJO's. It is tempting to wait till expiry before closing/rolling but the gamma  risk far outweighs the benefits, no chance to salvage if things suddenly turn, I have an iron condor on ( morphed previously from an iron fly ) underlying smack bang in the middle, will be closing this one out with a couple of weeks till expiry.


----------



## Sharkman (12 November 2019)

interesting. and you're still getting decent fills near the mid with those strategies?

i've pretty much given up on condors, christmas trees, call spread risk reversals and the like these last few years and returned to the very basics - cash covered puts and covered calls. similar to WayneL by the looks of it. otherwise too much of a hassle to calculate various scenarios & what i'll do in each one, especially when one is still working full time, and too many legs to pay commission on. the 1 by 2 ratio put spread is about as adventurous as i get these days, but i think sometimes those make more sense with limited collateral when the delta skew gets a bit steeper and i generally hold to expiry anyway.

you're right, it is a bit of a risk being short so much gamma, but i'm prioritising theta these days since i'm primarily after premium collection, rather than "threading the needle" or punting on blowups. it's manageable if you're fully collateralised and can opt to simply take the assignment. though on a clean break of support, sometimes i just have to close out at a loss and move on.

what about buying 2 or 3 month slightly-moderately OTM (say 25-40 delta) options to guard the topside and/or bottom when you're heavily short gamma and in danger of getting assigned in the final week? i used to do this a fair bit before i decided to go back to basics, you usually get time skew on your side and can always spread it off into a vertical/calendar after the front month rolls off to recoup premium and reduce decay. that way i get to ride those near the money short options right up til expiry with some moderate protection. of course, this could also be a symptom that i've gotten way too addicted to chasing theta!

can't see myself going back to executing lots of multi legged strategies any time soon though. maybe when i retire in another 2-3 years. but good on you if you've managed to make them work in this sort of market.


----------



## cutz (13 November 2019)

Hi Sharkman.

Only get decent fills on the big stocks / XJO.Got talking with a friend recently and decided to go long using a bull put spread with some volume on a smaller cap, I got fried closing out but luckily still managed to turn a small profit, filled way off the mid.

I kinda like your idea re. diagonals in the final week, in my case a back month long strangle over my nov iron fly then a short straddle on the back month on front expiry with some adjustment would have done the the business, dunno just thinking out aloud, all depends what the underlying is doing.


----------



## Sharkman (13 November 2019)

cutz said:


> I kinda like your idea re. diagonals in the final week, in my case a back month long strangle over my nov iron fly then a short straddle on the back month on front expiry with some adjustment would have done the the business, dunno just thinking out aloud, all depends what the underlying is doing.




yep pretty much, although i was a bit of a gambler when i used to do this, and often i'd only guard the topside even if i was short a front month near the money straddle, occasionally buying 3 month strangles if delta skew was flattish. i'd never buy a 3 month ATM straddle though, costs way too much premium for my liking.

i've always been somewhat reluctant to buy OTM puts due to the expensive IV, and i figured i could use margin to just take delivery if the short put got assigned (can't do this anymore), then use the resulting stock position as part of something else the next month, eg. sell 2x ATM front month calls for premium collection where 1 is a covered call and the other forms a new diagonal with the cheap IV 3 month OTM call. but as you say, has to be discretionary based on what's happening, hard to go rules based with this sort of thing.


----------



## renjer (28 November 2019)

Hi all, now that Optionsxpress (aka Schwab) has decided to close their doors in Australia, which broker would you recommend to trade options spreads?


----------



## Sharkman (30 November 2019)

renjer said:


> Hi all, now that Optionsxpress (aka Schwab) has decided to close their doors in Australia, which broker would you recommend to trade options spreads?




IB (Interactive Brokers) would be my recommendation. been using them for over 10 years now. excellent commission rates and i haven't found them all that difficult to use, although some people have complained about ease of use, so be warned they may not suit everyone. they're also not what they used to be before the forced migration from IB LLC to IB Aust, due to loss of SIPC protection and margining, but still the best i have found for ASX options trading.


----------



## ghoool (19 September 2020)

$1 a side for contracts + $2-6 for a share trade.


----------



## ghoool (20 September 2020)

Hello guys! I am from the UK, have a peek here, but I am considering to migrate to Australia. So this topic will be also useful for me to read. Looking at the most responses, it looks like the US trading platform is the most reasonable solutions. I think I will need to make more research to take the correct decision. If you have links to similar resources, please let me know.


----------



## cutz (30 September 2020)

ghoool said:


> If you have links to similar resources, please let me know.




G'Day,

Which links in particular ? 

Here is the IB one.  https://www.interactivebrokers.com.au/en/index.php?f=40071


----------



## MickStanciu (4 December 2020)

Hi, let me refresh this topic.
My trading activity consists 90% in selling options.

I use different strategies, depending on stock, premium ...

for example: 

I usually don't sell covered calls on stock that I own.
I do lots of buy-writes (buy stock, sell mostly ATM/ITM covered call) for a week if possible (or month if weeklies are not available).
I sell puts
and short strangles (sometimes)

I am doing this successfully for the last 3 years


----------



## Gunnerguy (26 April 2021)

Hi all,
I spent some time on ASF a few years ago, left for a while, but am back now.
I am intending to move into options trading.

I have traded shares/stocks for over 30 years but now want to move in to options as I now have a lot more time on my hands.
I have a grown a large portfolio of Oz Shares/ETF's over the years successfully but want to look at generating some income from the holdings I already have (if possible) and develop some holdings specifically tuned to options trading.

I have spent the last couple of weeks re-reading and re-learning about options and initially want to start slowly and conservatively.

1. I am looking at selling (writing) covered calls on currently held shares that have Capital gains already to start with. My MTR is now at a (very)/insignificant) rate so I am happy to 'risk' the option being executed/closed out. If they don't get executed I'm happy with some form of income.

Once I am comfortable with the above I then may move on to ...

2. Cash covered puts.

I am still (swing) trading shares/ETF's basically on a quarterly basis, and will continue to.

I see that the options boards are rather quiet and not many recent posts, however I hope that there are some out there who have an interest in options and/or trading them, and are willing to have some discussions, ideas exchanges, around Options.

Gunnerguy.


----------



## sanjiSez (10 March 2022)

Just a bump up to say a Hi,

I am mostly a buy and hold of broad based low cost index ETF”s for last several years. I have also some Aussie Lic’s and some Direct shares.
Outside of the above I have occasionally started mixing it with options.

most of my nightmares in options is dealing with tax I am not a trader for tax purposes.


----------



## wayneL (10 March 2022)

sanjiSez said:


> most of my nightmares in options is dealing with tax I am not a trader for tax purposes.



Taxation is a huge part of options trading as there are often a large number of offsetting tax losses and profits, and very much depends on how you wind up your trades and treatment of the underlying.

Closing out any trade of course  consider profit and loss but should also consider the tax implications.

...As if the options themselves aren't complex enough... Consciousness and competence and all that.

IOW, sometimes the most profitable decision isn't the most profitable decision.


----------



## sanjiSez (10 March 2022)

wayneL said:


> Taxation is a huge part of options trading as there are often a large number of offsetting tax losses and profits, and very much depends on how you wind up your trades and treatment of the underlying.
> 
> Closing out any trade of course  consider profit and loss but should also consider the tax implications.
> 
> ...



Yeah, so true. I have extensively searched all across internet and I see how under rated these tax issues are. People post their trades and make it more complex than it should be that I often wonder how are they going explain when tax office is about question them.

It is fairly easier atleast for traders to net things out I guess where it is often more harder for newbies who are also mostly speculators.


----------



## Sharkman (10 March 2022)

which specific aspects of it do you find a nightmare? the recordkeeping aspect?

i can't say i've ever found it to be much of a problem, and i used to do 200-400 option trades a year (Aust only though, i've never traded foreign options) when i was younger. i've dialled it back since then and am mostly a long term buy & hold guy too these days, though i'll still do several dozen option trades a year. TBH my ETFs have probably caused me more headaches at tax time than my option trades, i always struggle with figuring out what goes where in terms of stuff like primary vs non-primary production, NTAP discounted capital gains, withholding tax etc.

i do get accountants to submit my tax returns since i trade options thru a corporate trust, however i also work everything out myself independently and check that my figures match theirs as an extra verification safeguard, and i don't recall having too many issues there.

my best suggestion would be to custom build an excel spreadsheet to handle it instead of waiting for tax time before digging out 12 months' worth of broker statements (which i don't find particularly useful for tax purposes) and trying to figure everything out from those. get familiar with how to use pivot tables and aggregation functions like DSUM - those are the best tools for working this sort of stuff out.

keep that sheet open whenever you're watching the market (having a 2nd screen helps as you can have your spreadsheet open on one screen and TWS or whatever trading app you use open on the other), religiously enter every single trade into that sheet as soon as it gets filled, and triple check that all the numbers have been entered correctly before you do anything else.

this gives you an almost real time picture of your tax situation for the year, and that really helps with making trading decisions in my experience.


----------



## wayneL (10 March 2022)

Sharkman said:


> which specific aspects of it do you find a nightmare? the recordkeeping aspect?
> 
> i can't say i've ever found it to be much of a problem, and i used to do 200-400 option trades a year (Aust only though, i've never traded foreign options) when i was younger. i've dialled it back since then and am mostly a long term buy & hold guy too these days, though i'll still do several dozen option trades a year. TBH my ETFs have probably caused me more headaches at tax time than my option trades, i always struggle with figuring out what goes where in terms of stuff like primary vs non-primary production, NTAP discounted capital gains, withholding tax etc.
> 
> ...



Let's take something as simple as a covered call which goes well into the money at some time before expiry.

Overall the strategy is in profit since Inception. But your short call will be in, perhaps a substantive loss.

How about the underlying though? When, and out what price did you buy it? is the underlying in a loss situation,
 a profit situation, or perhaps even a massive profit situation due to long term holding.

Should you sit on your hands and allow assignment, or should you wind up the short call, take your tax loss and keep the underlying?

Over the years that can make quite a difference to your net worth.

IOW minimising your tax liability is crucial to your ability to be able to compound optionable investments.

FWIW


----------



## Sharkman (10 March 2022)

wayneL said:


> Let's take something as simple as a covered call which goes well into the money at some time before expiry.
> 
> Overall the strategy is in profit since Inception. But your short call will be in, perhaps a substantive loss.
> 
> ...




sorry Wayne, my comment was more of a response to sanjiSez (i probably should've hit reply to their comment instead of simply typing in the box down the bottom). i understand the situations you describe, and agree tax consequences are a vitally important part of trading.

but with a custom built spreadsheet and a deeply ingrained habit of entering every trade into it as soon as the order gets filled, i just can't remember ever having any problems with that sort of thing myself, all the data i need is readily available at the click of a button.

i don't have access to an API that can auto-feed live market data into my sheet (things like Reuters/Bloomberg APIs can be quite costly, thousands of $ per month i think, if anyone knows of any free ones that might exist, would def be interested) but it only takes a few seconds to key in the prices manually. once the formulas update i can see at a glance all of my open positions, what unrealised cap gain/loss each is carrying, discounted/undiscounted cap gains crystallised so far in the current FY, cap losses available to offset them, total premium received/paid for the FY, divs, franking credits, foreign withholding tax, it's all there. as close to real time as it can be without a live feed API.

in my view excel fluency is quite important to have when frequently trading. really handy having a sheet customised to suit one's specific needs and usage preferences, it ensures all the info you need is constantly available and easily accessible. i can't imagine being able to make decisions properly if i didn't know what my CGT liability etc for the year was.


----------



## wayneL (10 March 2022)

Sharkman said:


> sorry Wayne, my comment was more of a response to sanjiSez (i probably should've hit reply to their comment instead of simply typing in the box down the bottom). i understand the situations you describe, and agree tax consequences are a vitally important part of trading.
> 
> but with a custom built spreadsheet and a deeply ingrained habit of entering every trade into it as soon as the order gets filled, i just can't remember ever having any problems with that sort of thing myself, all the data i need is readily available at the click of a button.
> 
> ...



Yeah didn't quote your post as a go at you my friend, just for continuity of conversation.

The overarching point as has been excellently made by you, is effective record keeping, but also tax considerations, which I hope I have got people thinking about.


----------



## sanjiSez (10 March 2022)

Thank you sharkman, You have summed it up nicely, I definitely have to get into the habit of entering details as I put in a trade.

In my case I do only a handful number of trades a year. When I passed it onto my accountant I realised they were not confident in determining the capital gains tax event. I tried to look into the ATO website, things are not clear for me despite reading it several times.

Mine is usually a simple tax return with a couple of investments and a very small online business, personally do all the leg work and pass it on to my tax agent and lodge the tax returns through them more like a four eye check. I am not a total stranger to ato website. But anyway, the above event got me spooked.


----------



## Sharkman (11 March 2022)

wayneL said:


> Yeah didn't quote your post as a go at you my friend, just for continuity of conversation.
> 
> The overarching point as has been excellently made by you, is effective record keeping, but also tax considerations, which I hope I have got people thinking about.




all good mate, and completely agree, your real PNL is not what you make on the market, but what's left after the tax office has dipped their grubby paws into your coin jar.



sanjiSez said:


> In my case I do only a handful number of trades a year. When I passed it onto my accountant I realised they were not confident in determining the capital gains tax event. I tried to look into the ATO website, things are not clear for me despite reading it several times.
> 
> Mine is usually a simple tax return with a couple of investments and a very small online business, personally do all the leg work and pass it on to my tax agent and lodge the tax returns through them more like a four eye check. I am not a total stranger to ato website. But anyway, the above event got me spooked.




therein lies the main beef i have with how things work. you might be paying your accountants thousands of $, but the responsibility of ensuring that the submitted numbers are correct still lies with YOU. that's why i work everything out myself and check my numbers against theirs, just to make sure. which sucks really, you're already paying bucks aplenty for their expertise, but you still kinda have to know the rules and crunch the numbers yourself anyway, since you bear full responsibility for whatever figures are submitted on your behalf.


----------



## sanjiSez (12 March 2022)

Moderators if you think this is inappropriate or not at the right place please delete it or feel free to move this post where it belongs..
I am posting it only for educational purpose for me to have a better understanding, as I said before I'll be running this through an accountant and wont be treating as financial advise.

ticker code "x" that it is a hypothetical one.

The below is a simple trade. In my case (as a speculator/Investor/Tax resident all year) ,Could I please ask If My Understanding is correct:

1) Because a "contract" is involved in obtaining the asset , I declare the premium received as capital gain event in 2020/2021 FY?
2) Since No contract involved in disposing the asset and If I subtract the above declared CG event my sell price is lower than my buy price ,will that be capital loss for 2021/2022 FY?


Date Trade ExecutedOptionTypeTickerStrikeExpiry DateContractsPremiumProceeds in AUDProceeds in Base (Au)CommFeeNotesOpen on 30/06/202119/3/2021SellPutX$24.5015/4/20214$0.85$340.00$340.00$1.00$0.10Assigned. Sold the stock on 08/07/2021Y11/5/2021SellPutX$22.5020/5/20213$0.20$60.00$60.00$1.10$0.00Assigned. Sold the stock on 08/07/2021Y8/7/2021SellX$23.707$16,590.00$16,590.00$14.60Closing trade. (700 shares)NA


----------



## wayneL (12 March 2022)

@Gunnerguy may be the best qualified here to answer this/ask the right questions?


----------



## KevinBB (12 March 2022)

@sanjiSez there is one definitive document on the tax treatement of ETOs in Australia. It is available on the ASX web site, it is a PDF document written by Deloitte in 2011, follow this link to get it.

The tax treatment will vary depending on whether you are a trader, speculator, hedger or investor. If you can't work out which category you fall in, or if you can't understand the tax treatment described in the document linked above, you should seek advice from your professional tax advisor. Its the safest way.

KH


----------



## Sharkman (12 March 2022)

sanjiSez said:


> Moderators if you think this is inappropriate or not at the right place please delete it or feel free to move this post where it belongs..
> I am posting it only for educational purpose for me to have a better understanding, as I said before I'll be running this through an accountant and wont be treating as financial advise.
> 
> ticker code "x" that it is a hypothetical one.
> ...




my understanding is the following. i have used 3 different accounting firms over the years, all 3 interpreted it the same way, and i have never been queried by the ATO in some 14 odd years of options trading, so i assume this is correct. however you should speak to your own accountant (as you're already planning to do) in case your situation is different to mine (i trade thru a corporate trust).


sold mar puts are booked as $340 of regular income not cap gains ie. cannot be offset by cap losses
the $1.00 brokerage is booked as an expense ie. can be used as a deduction against any income type, and the 10c is claimed as a GST refund (as my corporate trust just trades, it doesn't provide any goods or services on which it charges GST)
on assignment the 400 units of stock put to you are treated as having a cost base of $9,800
any assignment fee (IB charges 27.5c + GST per contract, which you haven't mentioned) is also booked as an expense
similarly the sold may puts are booked as $60 of regular income, $1.00 as an expense and 10c claimed as GST refund
on assignment the 300 units of stock put to you are treated as having a cost base of $6,750, another set of assignment fees booked as an expense + GST refund
on selling the stock in jul the total cost base from above ($16,550) is subtracted from the net proceeds ($16,576.73 - non-GST component of brokerage is $13.27) so there will be $26.73 of undiscounted cap gains to declare + 1.33 GST refund
so if i had made the above trades i would book it as:

FY2021:

$400 of regular (non-primary production in the case of a trust) income
$3.93 expenses (2 lots of $1 options brokerage + $1.93 in assignment fees)
$0.39 claimed as a GST refund (10c + 10c + 19c from the assignment fees)
open stock position for 700 units with a cost base of $16,550
FY2022:

$26.73 cap gains
$1.33 claimed as a GST refund


----------



## sanjiSez (12 March 2022)

Thanks @wayneL :Much Appreciated.

Hi Kevin, I have been through that document and I am not sure if that is something Currently accepted, Even then I am not sure if gives me a convincing answer.
Thanks to the Individual that Someone has already asked this question in a much better way than I could ever imagine asking : 
Courtesy : ATO Community : https://community.ato.gov.au/s/question/a0J9s0000003082EAA/p00172893


----------



## sanjiSez (12 March 2022)

Sharkman said:


> my understanding is the following. i have used 3 different accounting firms over the years, all 3 interpreted it the same way, and i have never been queried by the ATO in some 14 odd years of options trading, so i assume this is correct. however you should speak to your own accountant (as you're already planning to do) in case your situation is different to mine (i trade thru a corporate trust).
> 
> 
> sold mar puts are booked as $340 of regular income not cap gains ie. cannot be offset by cap losses
> ...



@Sharkman : As far as i Understand what you said is right But The Inconvenience of going back to amending the previous year tax returns when I have to Buy to close the trade is what is bothering me.
Also, As I am not a trader for tax purposes I think that makes a different and what you stated as income in your case, for it is a capital gain tax event (D2) and When I buy to close next FY I have to record it as (C2) event.


----------



## sanjiSez (12 March 2022)

I should have Given an Example. Can I please ask how would you sum this one as


Date Trade ExecutedOptionTypeTickerStrikeExpiry DateContractsPremiumProceeds in AUDProceeds in Base (Au)CommFeeNotes29/6/2021SellPutX$21.5015/7/20214$0.25$100.00$100.00$1.10$0.00Buy @ .065 +Comm on 02/07/20212/7/2021BuyPutX$21.5015/7/20214-$0.07-$26.00-$26.00$1.10$0.00Closing trade.


----------



## Gunnerguy (12 March 2022)

wayneL said:


> @Gunnerguy may be the best qualified here to answer this/ask the right questions?



!!! Shoot really ???
I’m lurking here to find the answer myself lol.
Ask me any tax question but not on options ..... or novated leases ....
Gunnerguy.


----------



## Sharkman (12 March 2022)

sanjiSez said:


> @Sharkman : As far as i Understand what you said is right But The Inconvenience of going back to amending the previous year tax returns when I have to Buy to close the trade is what is bothering me.
> Also, As I am not a trader for tax purposes I think that makes a different and what you stated as income in your case, for it is a capital gain tax event (D2) and When I buy to close next FY I have to record it as (C2) event.






sanjiSez said:


> I should have Given an Example. Can I please ask how would you sum this one as
> 
> 
> Date Trade ExecutedOptionTypeTickerStrikeExpiry DateContractsPremiumProceeds in AUDProceeds in Base (Au)CommFeeNotes29/6/2021SellPutX$21.5015/7/20214$0.25$100.00$100.00$1.10$0.00Buy @ .065 +Comm on 02/07/20212/7/2021BuyPutX$21.5015/7/20214-$0.07-$26.00-$26.00$1.10$0.00Closing trade.




in that scenario i'd book $100 of non-primary production income in FY2021 (+ claim a $1 expense and a 10c GST refund) and $26 of negative NPP in FY2022 (+ claim a $1 expense and a 10c GST refund). i've been in such a situation plenty of times and that is indeed what my accountants have done every time. there is no need to amend the previous year's tax returns.

as per the document quoted by KevinBB:

Takers (pg 10)

A trader who buys an option will generally be able to claim a tax deduction at the time when the premium becomes due and payable. If the option lapses, there will be no further tax impact.

Writers (pg 12)

The premium received is likely to be assessable income to the writer on a due and receivable basis. This will almost always be the same as a cash basis because premiums are usually paid simultaneously with the grant of an option.

however as noted above i don't trade options as myself, i've only ever traded them thru a trust with a company trustee. if you're trading them as a different sort of entity you'll need to check with your accountant how they should be handled in that case.


----------

