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CGT on Options / Blue Chip Stategy

Discussion in 'Accounting, Tax & Legal' started by Sacko, 24th Feb, 2009.

  1. Sacko

    Sacko Well-Known Member

    20th Aug, 2007
    Central Coast, NSW
    Does any body know if Options have the same CGT discounts as shares and property if they are held for over 12 months?

    If so, do forum members think that this is an effective low risk way to invest into the current market with a longer term view for the Blue Chips which are at multi-year lows?

    Thanks in advance for your feedback
  2. AsxBroker

    AsxBroker Well-Known Member

    8th Sep, 2007
    Sydney, NSW
    Hi Sacko,

    I think the thing that puts most people off options is time decay/Theta.
    You can read more about it here under Theta. Basically it means you are paying interest for the cost of carry. It's usually easier to buy ordinary shares and have the benefits of being a shareholder rather than investing in long term options. A long time ago some warrant issuers issued endowment warrants and the dividends slowly pay off the outstanding amount.


  3. Young Gun

    Young Gun Guest

    As an option trader myself I reckon options are a great way to limit risk and generate a significant amount of income. definately not for the amateur investor but something you should look into when you have had real experience investing in direct shares.

    Personally I can classify myself as a professional trader and hence the normal CGT rules don't apply to me. e.g. I can use a capital loss to offset income.

    As a buyer of options you'd probably stick to options with an expiry date of between 30-60 days. So in that case you generally wouldn't get CGT discounts anyway.

    As a beginner I'd stick to writing covered calls and selling cash covered naked puts. Do some study and experiment with other strategies when you have more experience.

    I've found the following website to be a great resource for options strategies. I hope it assists you as well.

    Option Trading Strategies

    As a real example I bought 1,000 BHP shares in October for $31.22 per share, they are currently trading at $28.97. Normally this would a loss for a buy and hold investor of $2,250. However, by selling covered call options and naked puts over BHP, I still own 1,000 shares but I have generated an additional income of $8,100. So I have made a net gain of $5,850 or a yield on my initial investment of 26% in 5 months. (doesn't work like this all time, bloody CBA!!!)

    I love talking options so any questions just fire me an email.