Can you use options to minimize exposure to the US withholding tax on dividends?

[FSU]

Yes your strategy is correct. Your risks are basically what Rmorse mentioned. How much over fair value do you "give up" when entering the position. To minimize this enter the trade as a spread. Slowly change the price until you are filled. If you have to give up too much edge, don't do it.

Also you don't want to be in a position where you need to exercise your long call to capture the dividend. This most likely wont happen for some time if you are using 2018 options. Basically as long as the put is trading for more than the dividend you should not have to worry.

 

[FSU]

One more thing to add, if a stock is hard to borrow, you may be better off doing this trade rather than buying the stock. When you buy a hard to borrow stock you are giving the "value" of the long stock away to your broker. When you synthetically buy the stock by buying the call and selling the same strike put, you are keeping this "value".

 

[Daal]

One more thing to add, if a stock is hard to borrow, you may be better off doing this trade rather than buying the stock. When you buy a hard to borrow stock you are giving the "value" of the long stock away to your broker. When you synthetically buy the stock by buying the call and selling the same strike put, you are keeping this "value".

good stuff. what about the implied vol thing i mentioned earlier? does it help that the put are trading a higher IVs than the call?

 

[Daal]

I suffer from the same tax as Daal and despite doing much efforts to avoid holding US stocks through dividends still end up losing more than I wished each year in dividends (definetely over 10k)
Why would funds be refunded if filing a US return ? I heard long ago it might work for companies generating most of their profits overseas, like Philip Morris but not sure wether it works nor wether it's worth the hassle. It seems everytime I receive dividends fron US companies or US listed funds IB hit me with witholding tax. I'm even afraid to hold emerging markets etfs through dividends (maybe from past bad experience). Daal do you have experience with those, taxwise I mean ?
Otherwise, yes, using options or futures are ways to go around the tax if you don't get hit on your cap gains.

I always had to pay this tax. Never found a way around it using paperwork. Maybe there is and I just don't know it. In the markets, there are the SSFs but in this case, there is no market maker for it so that leaves only options

 

[rmorse]

good stuff. what about the implied vol thing i mentioned earlier? does it help that the put are trading a higher IVs than the call?

That is what FSU was talking about. If the Ivol on the puts are higher than the calls, it is normally from a high short stock rate (Or an error in dividend flows).

 

[Daal]

That is what FSU was talking about. If the Ivol on the puts are higher than the calls, it is normally from a high short stock rate (Or an error in dividend flows).

I see. In this case, the ETF Im considering, EWZ, has a 2.5% borrow rate, maybe that explains it but maybe its the excess demand for downside insurance as a result of the brazilian crisis

 

[rmorse]

2.5% is very low, so that's not likely to be it. EWZ pays a dividend in December that varies. The vol might be off because no one know what the dividend will be until it goes X later this month. Market makers get this one wrong all the time. I remember around 2008 when I was a MM in EWZ, that the implied dividend in the options was off by $1.00.

Remember, your trading platform is calculating Ivol based on assumptions. Interest and dividend flows are two of them.

 

[Sig]

I see. In this case, the ETF Im considering, EWZ, has a 2.5% borrow rate, maybe that explains it but maybe its the excess demand for downside insurance as a result of the brazilian crisis

Put call parity means that "excess demand for downside insurance" will never impact the price of a put vs a call for options where strike equals current stock price. Might want to read up a bit on that.