Unless you’re a considered a professional trader, options premia are considered capital gains and therefore not taxed.
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For options on US equities, let’s do not forget the section 871(m) of the IRS tax code.
Depending of the derivative, a dividend equivalent payment is calculated and US tax withheld (even if the investor never received a cash payment).
The rules are complex and exceptions apply.
Further information here: https://ibkr.info/article/2837
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Hi,
Sell the ETF Option
- You want to buy 100 VT at 70$ and you have 7000$ ready in your account, price now VT: 77$
- You sell a put of VT for August 21, 2020. Last price traded checked now: 1.60 x 100 = 160$
Buy the ETF
- VT pays each 3 months the dividends, so August 21th, more or less 3 months.
- Present yield VT: 2.35% annual, so, 0.5875% per quarter.
- 7000$ / 77$ = 91 stocks. 7000$ * 0.5875% = 41.125$ in dividends - 15% (if you have the W8, if not 30%) = 35$ in your account. Later you add to your global incoming for general taxes, etc.
Conclusion
Option: 7160$ in your account now.
Buy now: 91 stocks and 35$ in 3 months.
If VT doesn’t go to 70$ in August, you repeat the operation for November.
If VT go below 70$ in August, you’ll get 100 VT + 160$ cash.
Whatever happen you win selling an option that buying the stock.
Regards.
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You couldn’t have made it clearer than that. Thanks a lot @Tino!
Thank you too @Guillaume_GVA! I was not aware about this rule, but it sparked some more ideas 
Nonetheless, with regards to the US withholding tax on dividends, as I understood reading this forum, it shouldn’t be an issue for Swiss residents (as you can reduce it in half by filling out the W8-BEN form and then offset the other half against your tax payments via the DA-1 form).
The professional trader status is coming up a lot. As a private person, trading options more frequently puts you at risk of gaining this status. Which would also have an effect on the buy&hold part of your portfolio (no tax-free capital gains anymore).
Was someone in this forum categorized as a professional trader already? I got to know one person who was categorized as a professional trader because he was trading options (not on a large scale, but definitely more than just securing his buy&hold assets).
How about creating a GmbH and doing the options/futures trading within the company? Did anyone consider this, or is already doing it? From my point of view, this should be the safer option. Of course, you need to have 20k to create the GmbH and you’ll have to pay social security stuff etc.
For me, the risk of infecting the buy&hold part of my portfolio is too high at the moment. I’m also currently learning about options, but would not use more than 10-20% of my net wealth to trade them.
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Pushing this thread again to get more visibility…
Interesting to see that nobody replied to my last comment! So I assume that most of you would rather risk infecting their B&H portfolio by trading options/futures and/or using leverage than to consider opening a separate company for those activities. Do I get that right?
Or am I the only one being afraid of infecting the B&H portfolio part and having to pay taxes on the gains?
If you buy and hold, there are no gains to be taxed.
Sorry, I don’t understand your reply. Can you elaborate more please?
We are talking about selling put options here. Which puts us at risk of being qualified as a professional investor.
I’m not talking about the B&H part, I’m talking about the options/futures part. This stuff is not for beginners, and there’s a reason why you need to check additional boxes in IB before you able to trade those instruments.
OK I thought you were talking about the buy and hold part. I don’t see the buy and hold part being “infected” if you were qualified as a professional investor, since you never realise gains on it.
Not true if you want to retire early. Then you have to sell some shares, because dividend payments alone are usually not enough to cover your expenses. Unless you set your SWR to 2% or less, which means a bigger nest egg (and maybe working way too long, even you would be FI already).
I don’t know if the tax authorities would really differentiate in B&H part and the options part. I think once you “acquired” this status, it will have effects on your whole portfolio. Which would suck when you want to retire and find out you have to tax your capital gains.
But that only matters when you retire, you could worry about that at this point (setup a company for it maybe even can use that as an excuse to withdraw your pillar).
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I’m straying from the topic, so will open a new one if this goes much further but wouldn’t you need some kind of qualification to create a GmbH with its business purpose being to trade stocks and derivatives? Asking because I’m very interested by that possibility as a way to enact early retirement (by still having an official professional activity provided by the GmbH).
NB: the “at any moment” is for American options.
That’s actually one of my questions too! For the commercial register, you have to give a description of business purpose. But you are, more or less, free what you can write there.
I guess nobody here has done it before, so I’ll have to check with my tax advisors. If anyone has any good recommendations for advisors on this topic, feel free to drop me a PN.
Do you know if the professional status is being checked on an annual basis? I do take the professional status serious, because some cantonal tax authorities can be really pesky with that stuff.
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Can you elaborate / be more specific? Always interested to hear!
The commercial registers are tasked to clear companies without purposes ex officio, but most won’t notice nor care in reality (and managing only the companies own assets is not a purpose).
Yes it is. And while each year should be assessed completely independently, I hear there is both an entry and exit threshold.
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He was trading options on a larger scale (three figure amount per year), plus he sold some of his individual stocks. Because he was classified a professional (even though he was doing the options stuff non-professional) he also had to tax the capital gains for his individual stocks.
Unfortunately, I only met the guy during a financial meetup, and he didn’t elaborate further on the topic…
Good to know. Do you know more about the thresholds? Or was this the purpose of your first question?
It seems there is a lotta oughta/shoulda/woulda out there regarding this topic 
Thanks for the follow-up.
About the thresholds: That is exactly what I worry about because no one knows. There are the official guidelines, there are some known public court rulings, but apart from that no one really has a clue what is considered major enough for the tax office to step in.
What I tried to say is that I hear that you can apparently get away with quite some trading. Only once you do it excessively (or are really successful) you may be classified as professional. Same goes the other way: Unless you change something significantly, you will be classified as such going forward, even if you would have got away with that extend previously.
And yes, I phrase my sentences carefully. I shoulda/woulda/coulda if I am not certain, because some people confuse internet strangers with actual experts 
In your example, what’s the strike price? 70$ ?
Yes, I want to buy at 70, so the strike 70. If I get the same 160$ for strike 65, of course I do for 65!
You must check the day/hour you do. Depends a lot of the volatility.
I was a bit coward in march but there where some nice, nice primes for 1000, 1200 Dolars!
Then there is something strange in your example.
Before the exercising of your options, your cash balance (initially 7000$) is 7000 -77*91 + 160 +35 = 188$.
Say VT is at 60$ in August. The intrinsic value of the puts for 100 VT is 10 * 100$, right?
Then you owe 1000$ to whomever you sold the puts.
The 91 VT make 5460$. so in total the fortune is 5460 -1000 + 188 = 4648$. If you have 100 VT and 160 cash it’s 6160$. Not really the same sum…