It's Time To Start Thinking About Taxes - Option Index Trades and Taxes

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.

Update on Open Trades Expiring In December (21st)

With 27 days remaining to expiration the NDX Bull Put and Bear Call trades are very safe with distances of 303 and 297 points from the NDX closing value (2028) last Friday. The RUT Bull Put trade is also very safe with a 115 point distance. Even though the markets had some wild up and down swings last week our trades were not effected.

Many subscribers have not been able to get the NDX Bear Call trade filled. I will email an alternative Bear Call spread trade early next week if the NDX has some down days. If the NDX continues to rise from Friday's close the bid/ask values will increase so we might still be able to get .50 cents, or $50 per contract, so it's prudent to keep this NDX Bear Call order open with your broker.

I will be researching RUT Bear Call trades and a even a few SPX trades next week. If there are any safe trades with 3% or better returns, I will execute the trade, or trades, and send emails (PDFs). I would really like to complete a 2nd Iron Condor trade this month. I want to end the year with another 5% monthly return like we experienced in November.

The members area will be live later this weekend. I will be sending all subscribers an email when the area is live. During this transition I will continue emailing my PDF files to insure every one receives all my new Trade Alerts and Updates. I will be eliminating the HTML emails.

I am in the process of setting up auto trading partnerships with OptionsHouse and MF Global Securities. I have waited a long time for these brokers to offer auto trading accounts. Once I have these brokers setup I will consider others like Think Or Swim and OptionsXpress.

All October Trades Expired on Friday November 16th!!!!!

All Bull Put and Bear Call Spread trades expired worthless on Friday November 16th. I am very committed to ensuring this expiring trend continues. My trading strategy is very conservative resulting in safe credit spread trades earning 3%-8% each. I will strive and complete safe Iron Condor trades earning 5%-8%. My goal for the remainder of 2007 and the 1st quarter of 2008 is to earn a respectable 5% each month. This was accomplished this month.

The total return this month was 5.1% ($270/$5,290). All credit premiums collected totaled $271 (100+60+75+35) and $5,290 (2,400+1,925+965) margin was required per contract. If you traded 10 contracts per spread your credits totaled $2,700, 20 contracts $5,400. This month we had one Iron Condor trade completed on the NDX Index. This trade required margin for one side and generated a return of 6.6% (160/2,400).

New trades expiring in December will be emailed later this weekend. I will continue to focus on selecting very safe trades. I have another NDX Iron Condor trade and RUT Bull Put trade identified. The NDX 25 point Bull Put and Bear Call and RUT 10 point Bull Put spread trades have been very profitable and safe these past few months. With the markets continuing to rise and fall by 100 point and more I will be executing new trades with lots of distance.

Update on Open Trades Expiring in 4 days

With just 4 trading days remaining to expiration the 4 Bull Put and 1 Bear Call filled trades are still safe and out of the money now and should easily expire worthless with short option strike prices 109, 72, 52 and 316 points away from the current index values. If the markets keep trending down next week we will have to adjust one or more of the Bull Put trades. I will be pro-active and email adjusting trades when the Index price is within 20 points. The NDX and RUT indexes are slower moving than the DOW and SPX so with a few up days next week our Bull Puts should be expiring.

Members Area Almost Ready

I am very close to turning on a new "Members Area". It should be operational by the end of this month. After logging on subscribers will be able to view and print my current trades. Prior trades will also be available as well as a summary of the monthly and YTD performance history. I will still be sending all my trades (PDF Files) to subscribers requesting this service. This Members Area is long over due and will help all subscribers insure that they are getting all my trades.

Update on Open Trades Expiring In November (16th)

With just 13 days remaining to expiration the 2 Bull Put filled trades are still way out of the money now and should easily expire worthless with short option strike prices 288 and 97 points away from the current index values.

Two new trades were emailed this weekend and both are conservative and safe:

1) The NDX 25 point Bear Call spread completes an NDX Iron Condor trade so now our total return is 6.6%. A big benefit of getting this Bear Call order filled next week, assuming you have the Bull Put trade filled, is that the option brokers will not require any additional margin.

1) The RUT 10 point Bull Put spread trade safe and has a 3.6% return for just 13 days. RUT Bear Call spreads are risky with small premiums so I will not be able to complete an Iron Condor trade on this index this month.