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Strategies & Market Trends : Option Strategies

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To: robert b furman who wrote (2534)	10/24/2023 8:16:57 AM
From: Elroy	1 Recommendation Recommended By Thehammer Read Replies (1) of 2591

Curious if any here have experience trading options on MLPs? I was surprised to learn that options on MLPs are taxed differently than regular equity options. Here's what I know. Options on MLPs are called 1256 contracts, which are different from equity options. Profitable option trades on MLPs result in the capital gain being 60% long term, 40% short term capital gains, and taxed as such. I haven't tried this, but it may mean you can profitable day trade section 1256 contracts, and 60% of your gain will be taxed at the long term rate. This was super interesting - each Dec 31st your ongoing section 1256 positions produce a gain or loss (depending on whether the contract is making or losing money) which is realized in the trailing tax year.....even if you don't sell the contract. The cost basis of the section 1256 contract (which you have not sold) resets on Jan 1st the following year to take into account the capital gain / loss realized on Dec 31st of the previous year. Yeah, weird!!

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