Liquid options with low spread

And ofc you wouldn't do it in unlinked accounts as you would not benefit from the arb-haircut. Ostensibly you would be long in one account and short in another with full margin treatment required for both components which blows it up.

You can leverage tremendous tax-arb in this thing due to the small haircut for the arb. It's illegal AF in the US if you're implementing it as I have proposed. It's also complex enough to escape tax-authority scrutiny in most cases.

Audit? Go into crypto and run to non-extradition country and trade vol on crypto.
 
For someone wealthy enough to “be a client” contemplating tax jurisdictions there are lots of legal ways to do this with insurance wrappers.

destriero said:
And ofc you wouldn't do it in unlinked accounts as you would not benefit from the arb-haircut. Ostensibly you would be long in one account and short in another with full margin treatment required for both components which blows it up.

You can leverage tremendous tax-arb in this thing due to the small haircut for the arb. It's illegal AF in the US if you're implementing it as I have proposed. It's also complex enough to escape tax-authority scrutiny in most cases.

Audit? Go into crypto and run to non-extradition country and trade vol on crypto.
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fullautotrading said:
Hmm, thank you. But I am still probably not getting what is the advantage of the proposal.

How do you guarantee that you gain in the specific account subject to no-tax jurisdiction and not the other way around?

Unless you can just somehow "swap paperwork" at will, I do not think that is going to happen :)

If you could guarantee that, you could do it on any account,
and obviously would make $$$ with that and not trying these tricks to reduce taxes.

Further, the losses accumulated in the "taxed" jurisdiction are actually useful only
if there is eventually something to tax.

In addition, the position planned to open is not "market neutral" in the sense
that what loses one leg is gained by the other.

A strangle may cause a loss (limited only by time and underlying move) in one account and a small fixed gain in the other one, if the prices escape the strike range, or just a small fixed gain in both accounts if the price remains within.
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Of course you are more or less certain of a win in the no tax jurisdiction unless the underlying is flat the whole time or your miss the time to realize the loss . As soon as the market moves in either direction you win on one leg. That is the leg you realize the win, now you have a realized win in the no tax jurisdiction. After reopening you have a market neutral portfolio with an unrealized loss. Et voila.

Maybe you miss the time aspect. It is not different accounts I am talking about (would be illiegal to not report one account). For example 2022 Tax free jurisdiction, 2023 Tax resident in tax jurisdiction with capital gains tax. You can choose when to realize your gains.

I can even do better in some jurisdictions, where the money I get from opening the option is in the tax free jurisdiction i.e. no tax to be paid for premium received. If I close the position I have to buy the option and this buy is treated 100% as a loss. Some jurisdictions threat opening and closing an option as completly different trades.
 
fullautotrading said:
Ok, I begin to get the picture. So we are talking of continuously moving across countries in time like a fugitive just to save on taxes :)

Well, sure I am not familiar with that and it is, and will remain, certainly "out of my depth" :)
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You do not have to move continuously. This is called perpetous traveller, where you do not stay long enough in a country to be taxed at all. Again not working for the US Guys as you are one of two nations that tax based on nationality.

Lets say you move every 5 years you realize EVERY Profit while in Panama and harvest the tax loss while being back in the tax jurisdiction. You also realize every loss you have while beeing in the bad jurisdiction. Some shares go up some shares go down over 5 years you get the picture. You need the tax loss because you get dividends every year and sometimes some of the shares you own get bought out ie you have to realize a win that you cannot escape while beeing in the "bad" jurisdiction.

We are talking about individuals that usually only reside in one county not about companies or tax fraud where you have an unreported offshore account.

Regarding the risk aspect. I would like to take in a huge option premium i.e. sell an option deep deep in the money. That is good for the tax treatment but more important I need this big cushion so that I do not run a big risk in case of a 30% market move in either direction. So I would need at least a strike that is 30-40% away from current prices. I think a move to the downside is a much bigger risk. I cannot imagine a scenario where the market goes up by 40% in 2 weeks but have several scenarios where it goes down 50% or more in 2 weeks.
 
fullautotrading said:
I get that he is possibly doing this not as a trading strategy, but to save on taxes.

However, the two charts only show that whatever he is planning to do with ITM options he can do just the same, and better, with OTM options. Since he was so concerned about the spread.

It is immaterial how he uses the configuration and if the legs are on different accounts (arbitrage or whatever).
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Currently planing on having the legs in the same account due to possible margin restraints.

Please elaborate how I can use OTM options to achieve a market neutral portfolio without any risk? Buying options is not working in the tax jurisdiction. I "need" a big option premium so that I have a win in the no tax jurisdiction. The win from each OTM options would be very small or I would need to buy a lot and therefore higher commisions not a big concern but nevertheless.
 
fullautotrading said:
I am not clear on your actual goal and in order to understand you should provide more precise info on what you are doing and why, or else it's difficult to say anything.

Usually, I work with investors, who, in practice, find ways to not pay any taxes at all, and therefore my concern is to make as much $$$ as possible, and not mix the trading approach with the tax concerns. Also because losses and DD are usually negligible (<5%).

Anyway, talking of pure theory, about the trade you are contemplating, since you mentioned about 2 weeks duration, take for instance the available strikes for short-term options. If you have problems with data you may take for instance momentarily the quotes from Barchart or other similar website:

View attachment 300196

I am receiving the same quotes directly on my platform, so I can take them from there:

View attachment 300195

Now, you can clearly see that if you sell (ITM)
PUT 4080
CALL 3990

you get this payoff:

View attachment 300193


if instead, you sell (OTM)
CALL 4080
PUT 3990

you get this payoff:

View attachment 300194

So, as has been already pointed out by two posters (getthatintoya, TheDawn), in any case, you get a "risk equivalent" strangle (but slightly more convenient OTM).

But the spread values are as follows:

ITM
ES FOP 20221209 3990 C CME 50 E-mini S&P 500 [EW2Z2 C3990, 592160444, mult: 50]
ES FOP 20221209 4080 P CME 50 E-mini S&P 500 [EW2Z2 P4080, 592312679, mult: 50]
Spread values: $25

OTM
ES FOP 20221209 4080 C CME 50 E-mini S&P 500 [EW2Z2 C4080, 592312694, mult: 50]
ES FOP 20221209 3990 P CME 50 E-mini S&P 500 [EW2Z2 P3990, 592160462, mult: 50]
Spread values: $12.50

(Not sure why would one consider this basic configuration as low risk and why you say that one leg would be "covering the other part". Probably I am missing something.)

Paper trading execution is generally accurate on IB. Sometimes in real money trading, one can get slightly faster or more favourable executions.
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I would need strikes like 2400 and 4420 to feel comfortable risk wise (30%). The strikes are far to close and I would run a suicidal risk with those strikes, I agree.
 
newwurldmn said:
For someone wealthy enough to “be a client” contemplating tax jurisdictions there are lots of legal ways to do this with insurance wrappers.
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How can you pass this judgement without knowing the jurisdiction we are talking about? Insurance wrappers cost a lot of money i.e. 1-3% of notional and are not working in several jurisdiction. As explained several times this setup is completly legal wheras insurance wrappers are in some jurisdictions tax crimes.
 
Overnight said:
LOL!

Dest asks "Why did the chicken cross the road?"

Option trader answers "I don't know, why did it?"

Dest say "Dumbass, there is no chicken. Your theta decayed it to zero value" and shoots the Option trader in the ass.
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There is no road either :-)
 
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