Margin Capital with Options

tl;dr: Options are complex instruments, but can be a useful way for a Swiss investor to get margin capital, because there are problems with leverage, withholding taxes and debt interest.


tl;dr: If you want to leverage, incorporation is not that bad.

Why would that be important? As a natural person leverage is not easy in Switzerland. There seem to be forum members which use leveraged ETFs without being classified as professional securities trader. But legal certainty is low and the more complex and custom the strategy the more uncertain.

So what about removing that problem by incorporating a limited liability company?

  • Sure, you pay taxes on everything (including capital gain), but taxes are as low as 12% in Switzerland.
  • Sure, you can’t book holidays with this money, without first paying tax on dividends, but it is reduced by a lot. The total is likely lower than being taxed as a professional securities trader
  • Also you stop paying high taxes on everything and only pay fully on consumption.
  • You can deduct losses up to 7 years and you can defer paying taxes on capital gains by not selling.
  • Live in Zurich but pay (company) taxes elsewhere.

Withholding Tax Problems

tl;dr: Debt interest is bad in combination with withholding taxes.

The updated ordinance on deducting foreign withholding taxes “Verordnung über die Anrechnung ausländischer Quellensteuern” (German) in force since 2020-01-01 reduces the deduction for companies by debt interest paid (art. 10-11) . It is rather complicated how they attribute it to your asset positions. But it will in essence have unrecoverable withholding taxes fully apply on a significant part of the gains you didn’t really have (because you needed to pay debt interest with those gains). Since dept interest will reduce your gains on margin by likely more than halve, the remaining gains will in effect likely be taxed more than double.

Which is an unacceptable drag on this strategy. And also dumb, because there is a myriad of ways to bypass this. It sticks out like a sore thumb in a legal environment where you pay taxes once on net gains only.

Enter Options

tl;dr: Box spreads can give you cheap margin capital. Interest is paid through capital loss.

Please don’t touch this, if you don’t know what you are doing. Other people have thought that “it can’t go tits up” before. But options can potentially be one more useful tool at your disposal (if read up on them until you understand).

Maybe some have heard about box spreads (shout-out to the unanswered question by @Ewian). Basically:

-- full explanation on

The difference is equivalent to the interest you pay for the period. It should be possible to get it a bit above the risk free rate with liquid options (e.g. options on SPX). If you can wait for your offer to get filled. If you can’t then you will pay something for the privilege.

On IBKR the cash you will need to pay back is fully margined, so you will get margin called before you don’t have any equity left to pay back.

Variation: Deep ITM Bear Call Spread

tl;dr: This is especially interesting if you leverage the underlying.

This nice graphic from shows the payoff profile:


Since Delta is nearly equal to 1 for each leg, you will just pay the risk free rate plus a bit of spread. Additionally buying and selling the corresponding puts to make a box spread doesn’t add much. They are so far OTM that they are near worthless and mostly push complexity and fees by doubling the amount of options involved.

The cool thing is that, because the underlying is the S&P 500, if there are huge drops, the long call will rise in price stronger than the short call. That is because its strike price is higher. You could sell and re-buy lower for some significant profit. And if it drops catastrophically (far left) you will not have to pay back in full. This goes well with also holding ETFs replicating the S&P 500.

What is also cool is that on IBKR the rules based margin is fixed on the difference between the strikes. Different from Box spreads which additionally considers the cost to close (not nice in a market panic).

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On further thought, that doesn’t solve the bigger problem. US brokers will lend your stock if you need any collateral for naked shorts or margin up to 140%. That leads to payments in lieu of dividends. Those are taxed unrecoverably and non-deductible with US withholding taxes of 30%.

If only you could make your broker call back your assets before ex-dividend date (a handful of days per year).

I also had a look at selling before and rebuying on ex-dividend date. Someone else gets the dividend and you buy the asset back at a price that dropped approximately by the dividend paid.

Real world data is mixed. The below table compares the total return advantage of strategy 1 over strategy 2:

  1. Selling on close before ex-dividend and rebuying on ex-dividend (on open / on close)
  2. Holding and receiving the dividend (tax-free).

Days p. a. can be more than dividend dates p. a. (e.g. weekends count for 3 days).

Asset Index Open p. a. Close p. a. Days p. a. Data Start
VT FTSE Global +0.15% +0.11% 6.28 Yahoo 2008-06-27
SPY S&P 500 -0.64% +0.51% 4.01 Yahoo 1993-01-29
IVV S&P 500 -0.64% -0.07% 6.64 Yahoo 2000-05-19
VOO S&P 500 -0.60% -1.33% 6.96 Yahoo 2010-09-09
KMLM KFA MLM +1.17% +1.17% 1* Yahoo 2020-12-02

* Not enough data, but 1 annual distribution every December (no weekends/holidays).

I also tried to comparing non-US ETFs. Their results were bad, but I suspect complicated ex-dividend dates producing false results (even after attempts to fix it).

I would try with a non-dividend paying stock like BRK.B. I’m sure you’ve already tested swiss ETFs of swiss stocks so I won’t suggest that. Liquidity may be a problem, though.

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I think I’m back to futures. Look at me, I’m a circle… :sob:

Next I will have to calculate futures total return (so including roll yield and financing). It needs to be compared to the equivalent physical replication and a gross total return index.

Has anyone found something comparing the total return of holding and rolling futures?

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