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Index Options
Include…
S&P 500 Index Options
SPX offers exposure to the largest 500 U.S. companies.
Index options work just like single-stock or ETF options but offer more advantages and flexibility.
See how SPX can unlock new possibilities for trading and then collect your choice of awesome prizes.
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60/40 Tax Advantages
Index options like SPX are 1256 contracts* that qualify for 60/40 tax treatment. That means you pay less capital-gain tax than you would on an ETF or stock option.
* Under section 1256 of the Tax Code, profit and loss on transactions in certain exchange-traded options, including SPX Options, are entitled to be taxed at a rate equal to 60% long-term and 40% short-term capital gain or loss, provided that the investor involved and the strategy employed satisfy the criteria of the Tax Code. Investors should consult with their tax advisors to determine how the profit and loss on any particular option strategy will be taxed. Tax laws and regulations change from time to time and may be subject to varying interpretations.
Let's look at how taxes affect a $15,000 gain on an index option compared to an ETF option.
+$15k
Take Home$9,750
With ETF options, 100% of your gains are taxed at the short-term capital gains tax rate - unless you hold for longer than a year.
On a $15,000 gain, that would amount to $5,250 in taxes. Yeesh.
With index options, only 40% of your profit is taxed at short-term capital gains rates, while 60% is taxed at the long-term rate.
On a $15,000 gain, that would amount to $3,900 in taxes.
Comparison Chart
This chart shows the difference in taxes on index options versus ETF options.
| Index option | ETF option | |
|---|---|---|
| Total Profit | $15,000 | $15,000 |
| Short-term capital gains tax (@35%) | $2,100 | $5,250 |
| Long-term capital gains tax (@20%) | $1,800 | $0 |
| Total tax | $3,900 | $5,250 |
| Profits after tax | $11,100 | $9,750 |
| Profit difference | +$1,350 |
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