Optionable International Indices

[success108]

Does anyone know of international indices traded on US exchanges? I'm looking for indices to get preferential tax treatment ([SIZE=-1]section 1256(a)(3)[/SIZE]) so ETFs won't work. Domestic equivalents would be SPX (SP500) and RUT (Russel 2000).

The only ones I could find that you could write options on are currency related. Can anyone help me out?

 

[bpp3]

Can you explain what advantage you get from this? A quick look at US CODE: Title 26,1256. Section 1256 contracts marked to market mentions cap gains being treated as 60% long-term and 40% short term, but you have to mark-to-market and recognize those gains every year. If you just hold an ETF for more than 1 year, all your cap gains become long-term, and you can choose when to recognize them (by selling and rebuying). You do get some taxable dividends from the ETF, but that seems miniscule compared to having to mark-to-market gains every year...

I'm guessing you have some special situation for which this makes sense? Perhaps you are a non-resident alien who pays no tax on capital gains or something?

 

[success108]

I trade option spreads to take advantage of the difference in time decay between long-term and short-term options. So I sell options every month, which would be short-term gains unless the securities options are sold on fall under section 1256 (broad-based indices, futures, and currencies). 60/40 mark to market for gains saves me a bundle in taxes compared to paying income tax on 100% of the gains for the year.

Broad-based indices are my preferred investment vehicle. So far I am trading SP500, DJIA, Nasdaq 100, Russel 2000 (sm. cap), and SP400 (mid cap). I would like to get some international diversification without using currencies but I can't find optionable international indices traded on US exchanges.

 

[eridanus]

As you probably know, US resident citizens aren't allowed to trade a lot of the world's index futures or options due to CFTC regulations.

There's a Nikkei 225 future trading on the Singapore exchange; SGX also has a Taiwan future that's very volatile. You can trade the German Bund, but few of the European indices. There's the FTSE 100, but it doesn't have options.

 

[success108]

eradinus,

I was wondering why it was so difficult to trade international indices, thanks for the info on the CFTC regulations. Do you have any suggestions on how to get international diversification while still complying with sec. 1256?

 

[eridanus]

eradinus,

I was wondering why it was so difficult to trade international indices, thanks for the info on the CFTC regulations. Do you have any suggestions on how to get international diversification while still complying with sec. 1256?

The CFTC is very slow in its approval process. These are the only international futures w/ options of which I am aware.

1) NK225 on the Singapore exchange (SGX)
2) Taiwan on the SGX
3) Aussie S&P on the Australian futures exchange (SNFE)
4) ?? Korean future when it's granted approval
5) ICE has futures/options on oil, which is world diversification.
6) Commodities on the LIFFE, which trade in GBP (though 'wheat' isn't really international).
7) The German Eurex, which offers Euro Treasuries (Bund and Bobl).

 

[success108]

Excellent information, thanks eridanus!

Since choices are so limited, I'll probably stick to good old US indices.