Options won't allow you to escape the tax apparently. They will be taxed on the underlying "notional" value.
Take SPY for example. Trading at 110. If you buy one call at the money today's Dec 110 call cost is $2.22. That means your cost to buy the call is $222. The "notional" value of the call however is $110 x 100 = $11,000. So your 0.25% tax on $11,000 is $27.50 . That means your tax is really 12% on the money you lay out, not 0.25%. Double the tax for a roundtrip for a total of 25%. That means you have to have a 25% return on your call just to break even not counting commissions! The cash settled SPX is roughly the same. Buy an 1100 SPX Call today at $22.0 Your cost for the call is then $$2200. The notional value of the call is 1100*100 = $110,000. The transaction tax is $275. You will have to have a 12% gain to break even on a one sided transaction and 25% to break even on a two sided tax. The advantage of the cash settled option is that it is taxed 60-40 (60% long term, 40% short term rates). Hopefully the tax if passed will only apply to stocks and futures and options will be exempted. MarkK From: [email protected] [mailto:[email protected]] On Behalf Of Potato Soup Sent: Thursday, December 03, 2009 3:28 PM To: AmiBroker (Discussion List) Subject: [amibroker] OT: Congress considering financial transaction tax. To my fellow American AmiBroker users. Just curious if everyone here is aware that the bill to impose a quarter percent tax on every stock trade (both ways, win or lose), as well as a .02% tax on every derivatives contract is gaining serious steam in Washington and the mainstream media, including CNBC. This woud kill liquidity, destroy small and large traders, increase spreads and volatility, and erode capital investment in US companies, thereby causing more unemployment. It will also result in captal flight to Asian markets and the end of America as the financial center of the world. If you're not on the phone giving a talking to your congressional rep, and not writing newspapers and speaking out, your days as a trader are probably numbered. If you think this tax can't pass, take a look at every other example of so called bills that could "never pass". Here are the details: http://www.bloomberg.com/apps/news?pid=20601087 <http://www.bloomberg.com/apps/news?pid=20601087&sid=adcaJQ1Xp4_w&pos=8> &sid=adcaJQ1Xp4_w&pos=8
