Capital Gains Taxes on Stock Option Index Trades

Short-term gains from most types of stock and option investing are taxed at the same rate as ordinary income. Long-term gains on stock and option investments held for more than 12 months are considered long-term and taxed at 15% in most cases. If your tax bracket is below 25% then long term gains are taxed only 5%.

The good news is that the gains from the stock index options trades we are trading are taxed differently than gains on individual stock options and stocks. Gains on our stock index spread trades are considered ITC Section 1256 contracts. This means any gains made in these trades are taxed under a 60/40 rule. This rule states that gains are treated as 60% long-term capital gain income and 40% short-term capital gain income (ordinary income) regardless of how long the investment was held. So when we hold a index spread trade for 30 days (our average holding period), 60% of the profit made from that trade is treated as long-term capital gain income and taxed at 15% or 5%. Please do not take this information as tax advise. Do your own research with a tax advisor like H&R Block.

CBOE Virtual Trading - Free, Easy and Educational

Visit the link to access CBOE's new virtual trading system. This system is free to use by anyone and no brokerage account is needed. Paper trading is the best way to learn how to execute, track and manage stock and option trades. For both new and experienced options traders this system allows you execute trades associated with all the option strategies. I am recommending to all my new subscribers that they use this system during their 60 free trial to paper trade all my credit spread trades.

Also, the system CBOE is using is OptionsXpress's actual virtual trading system which is one of the best available on the internet for paper trading option strategies.

http://www.cboe.com/tradtool/virtualtrade.aspx

My Trading Strategy and Goals

1) Earn consistent cash profits month after month averaging a minimum 3% (2-5%) net monthly return. This is a 36% annualized return. Earn these profits in bull and bear markets. So far in 2006 the annualized return is 47%.

2) Enter Bull Put Credit spread trades on the SPX, NDX and RUT Indexes that have a very high probability of expiring worthless. This is a low risk options trading strategy.

3) Complete Iron Condor trades with Bear Call spread trades on each index to double the return on the required margin capital that only covers one side of the Iron Condor.

Index Credit Spread Trading Advisory Service – 60 Day Free Trial

I am an active trader of option credit spreads on the SPX, NDX and RUT broad based stock indexes. I am very conservative and only enter into trades that have a very high probability of being profitable. I share all my trades with subscribers to my advisory service.

My purpose is to make it EASY and SAFE for subscribers build wealth using the power of options. I want to help subscribers avoid the painful mistakes most beginning traders (and many experienced traders) make. Subscribers who just follow my Trade Alerts can earn a very consistent monthly return. Once a new subscriber uses my service for a 60 day free trial period, they will find it to be the most easy and profitable way to build wealth they’ve ever discovered. That’s why I want all new subscribers to try it ABSOLUTELY FREE for 60 days. New subscribers immediately receive all my active trades. They can start investing right away, or just follow my trades "on paper" for 60 days. If they aren’t convinced this Trading Strategy is the safest, easiest way to build wealth, they can simply ask me to cancel their subscription, and they won't be charged a dime.

One final note: While I show subscribers how to make consistent monthly profits with options, I also teach something more important. And that is how to effectively manage money and risk so when a trade is at risk, losses are kept to an absolute minimum.

An option credit spread is a limited risk option trade involving the simultaneous purchase and sale of two differing option contracts on the same Index, i.e. the SPX. This produces an immediate cash credit in your trading account. A profit is realized in a credit spread position if the index moves in the direction anticipated, remains the same and even if under appropriate circumstances the index moves adversely to your position.

Benefits of My Service and Credit Spread Trading

• My credit trades have a 90% probability of expiring worthless when filled.
• 3-4 Credit Spread Trade Alerts each month. These credit spread trades can profit in any type of market.
• The majority of time we just make our trade, collect our credit and wait for the next month. This is not a day trading system. There is no need to monitor the market and your active trades all day long in front of the computer screen. In fact it's really a very boring trading system.
• Paper trading is the best way to learn this option strategy. It's all free with OX and my 60 day trial.
• The SPX, NDX and RUT Indexes are not subject to the same wild swings as individual stocks.
• With my Iron Condor trades you get double the credit but only have one margin side at risk.
• You want your credit spread trades to expire worthless but you can always buy them back for way less than you sold them for.
• Your trading capital is only used to support margin requirements. Most option brokers allow you to invest your trading capital and use it as collateral for spread trading. This way you can earn 2 returns with the same capital.

Please visit my website. You can see my actual performance results of all trades for the last 12 months and the current YTD return which is amazing. My website is over 25 pages and full of content that covers all aspects of this trading strategy.