Ken,
What is the basis of your opinion that QQQ options [NDX] can not be considered Section 1256 equity options?
I come to exactly the opposite conclusion.
Here's my reasoning:
[caveat: I am not a tax attorney so obviously you should not rely on my opinion without consulting tax counsel]
Section 1256 of the tax code says:
b)Section 1256 contract defined
For purposes of this section, the term 'section 1256 contract' means -
(1)any regulated futures contract,
(2)any foreign currency contract,
(3)any nonequity option, and
(4)any dealer equity option.
The term 'dealer equity option' means, with respect to an options dealer, any listed option which -
(A)is an equity option,
(B)is purchased or granted by such options dealer in the normal course of his activity of dealing in options, and
(C)is listed on the qualified board or exchange on which such options dealer is registered.
Equity option
(A)In general
Except as provided in subparagraph (B), the term 'equity option' means any option -
(i)to buy or sell stock, or
(ii)the value of which is determined directly or indirectly by reference to any stock (or group of stocks) or stock index.
Equity option
(A)In general
Except as provided in subparagraph (B), the term 'equity option' means any option -
(i)to buy or sell stock, or
(ii)the value of which is determined directly or indirectly by reference to any stock (or group of stocks) or stock index.
(B)Exception for certain options regulated by Commodities
Futures Trading Commission
The term 'equity option' does not include any option with respect to any group of stocks or stock index if -
(i)there is in effect a designation by the Commodities Futures Trading Commission of a contract market for a contract based on such group
of stocks or index, or
(ii)the Secretary determines that such option meets the requirements of law for such a designation.
fourmilab.ch
So the issue becomes: are the options in question futures contracts, hence subject to regulation by the CFTC.
Under the Commodity Exchange Act Section 2 (a)(1)(B), "the CFTC has jurisdiction over stock index futures and options on stock index futures (subject to SEC review as discussed below), while the SEC has jurisdiction over options on individual stocks and options on stock indexes".
cftc.gov
Since the SEC, and not the CFTC, has jurisdiction over options on stock indexes, they are Section 1256 contracts.
[italics and emphasis mine] |
