Selling puts on SPY

Has anyone sold cash-covered OTM SPY puts?

What is the tax treatment of these in Switzerland, is the income counted as if it was a capital gain or a dividend gain? Would the tax office consider writing puts as professional trading (this is mainly a risk parity thing for me).

Per se, it‘s a very strong and textbook indication of professional trading.

Buying/selling puts that is covered with cash/stocks is basically insurance for your stocks, same way as you would buy fire insurance for your house.

Do you have any personal experience, or any of your acquaintances ended up getting classified as professional traders?

Please don’t think we are fools. Selling cash covered OTM puts is NOT an insurance, but a way to earn money on the side.

Just check Kreisschreiben 36 from ESTV, or use the search function here in this forum.

You might get away with selling some put options, but it also depends in which canton you live. Personally, I met someone who was classified as a professional trader in canton Schwyz. Also my tax advisor had clients who were classified. In canton Zürich, it’s rather unlikely.

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Kreisschreiben 36 from ESTV

Thanks for this, as long as the tax office thinks the options buying/selling is for hedging then it is not considered professional trading.

Please don’t think we are fools. Selling cash covered OTM puts is NOT an insurance, but a way to earn money on the side.

I want to keep a static allocation of 60% stocks, 40% cash (since bonds are negative), one way to achieve this is to sell puts (and earn something on the side), rather than buy stocks by myself when stocks drop sufficiently.

Personally I do not see how this is professional trading or an advanced strategy that would require a person to be an expert and carefully trade the derivatives according to some plan.

Buying put options is portfolio insurance, I don’t see how selling put options is portfolio insurance, care to elaborate?

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I sold puts on SPY a handful of times but stopped it because I am near FI and size of my portfolio is large relative to my salary. I did not want to put at risk one of the advantages of being resident in Switzerland which is no capital gains tax.

Best not be too greedy

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In the end, she/he shouldn‘t care about about - but the tax office. :wink:

If anything is professional trading, it‘s selling puts. Even the risk parity remark kind of indicates it. And I can’t see any tax office considering it as „portfolio insurance“. Well, unless the rest of your portfolio is structured „professional-trading like“, I guess.

I‘m not saying one can‘t get away with some professional trading „on the side“ without being taxed as such. But since Rainmaker didn‘t indicate volume, relative size to his portfolio holdings/transaction volume and domicile, it‘s hard to make a guess.

Was wondering why people in this forum regularly mention Zurich has being more lenient with regards to professional trader status. Was wondering where this information is from? Did you hear that from tax advisors? Thanks in advance

I‘m not saying one can‘t get away with some professional trading „on the side“ without being taxed as such. But since Rainmaker didn‘t indicate volume, relative size to his portfolio holdings/transaction volume and domicile, it‘s hard to make a guess.

Portfolio size is roughly half a mil, and domicile is ZH. I am almost never selling, even when re-balancing, I just wait for my income from my job to “catch up”.

I want to sell enough put contracts, so that if I am assigned, my stocks-cash ratio will remain 60-40.

That’s more word of mouth, so don’t only count on an opinion from a random dude on an internet forum. I talked to a friend who told me that canton Zurich is more hesitant to classify someone as a professional trader, because then you can also deduct a lot of stuff. I think the number of people who are classified professional trader in canton ZH is rather small, but it doesn’t mean that you can get away.

Best is to ask a tax advisor in canton Zurich, I guess. They should be able to tell you, but most probably they will also tell you about Kreisschreiben 36 saying that you should fulfill all 5 criteria.

Not sure how you want to achieve this goal. If your portfolio is roughly 500k, you have 300k in stocks and 200k in cash. If you sell an OTM SPY 440 PUT for 14.02.22, you risk being assigned if the price drops. Hence, you would have to buy 100 SPY for 44k. Afterwards, you have 344k in stocks and 156k in cash. Ratio is 68.8%/31.2% afterwards. All of this risk for a premium of 197$.

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I have been selling covered puts and calls for several years, never been audited by the tax office. Also note that you are not required to report all the transactions you do in a year only your wealth per 31.12 and the dividends you earned. Selling options is not a taxable event by default so no need to report it. There are many posts on that forum dealing with professional trader status but again as long as your wealth increase is for most part explained by taxable income (work income, dividends, rental properties, etc.) or an increase in line with stock market performance you have no reason to be audited. One article mentioned in that forum quoted an interview from the ZH tax office saying that the process of becoming a professional trader in 99% of the cases starts with an audit from the tax office who does not understand the increase of your taxable wealth from one year to the next.

In the same line I also have a lombard loan whose interests I deduct in my tax return, sold securities in an extend of 400k to buy a flat in a given year and that never raised any red flag. So unless you really trade for a living and that makes up most of your income you are pretty safe… Unless I m wrong we are yet to see the testimony of someone being forced to the professional trader status on that forum.

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I still regard this as a popular myth - and a grey area at best,

Tax declarations ask you for increases and decreases (usually purchases and sales) of securities and to confirm the completeness of the form.

I can‘t find any restriction or limitation in the sense of „EOY only“ in the tax authorities‘ guidance or the law itself. Also, the criteria laid out to determine professional status seem quite pointless if you don‘t have to report.

Wer unter dem Jahr Aktien verkauft hat, muss diese ebenfalls angeben. Für die Steuererklärung irrelevant sind nur Wertpapiere, die schon in einem früheren Steuerjahr abgestossen wurden.

Finanzen - So geben Sie Aktien in der Steuererklärung an | cash

Surely it depends.

If you have 50k invested assets and 150k salary and are selling small option contracts it’s unlikely they will treat you as professional

If you continue doing it for 20 years and your assets grow to 5M perhaps expect questions

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You are right that there doesn’t seem to be anyone here with professional trader status. But that’s a bit of a chicken/egg situation. In my case, if I would freely trade without worrying about professional trader status, there would be as many red flags as you can think of. So that’s why I tweaked my trading style to fit the safe haven rules. Sometimes that costs me profits and sometimes it helps me make more profits. We all don’t always know when is the best time to enter/exit the market.

Most probably two things are important here:

  1. your wealth has jumped significantly from one year to the next (as you mentioned)
  2. canton Zurich tax department has a lot of work

I talked to someone yesterday who said that ZH tax office uses a software to automate tax declarations. If the software returns green, they won’t check you in more detail. If it returns red, they will ask more questions. So I guess it’s a combination of software not detecting you and ZH tax office also not having enough people to deal with someone who sells some small amount of PUTs on the side. Please note that this is word of mouth, and the person I talked to was older. So most probably the information is outdated.

Cantons with less people might have different ways to check tax declarations, which might explain why canton Schwyz is more pesky in this regard. I also didn’t hear good experiences with canton Bern.

As @San_Francisco rightfully said: it’s a grey area. You are clearly only 100% safe if you follow all 5 criteria from the Kreisschreiben 36. If you don’t, you might be classified as a professional trader. The probability might be low in canton ZH, but it’s not zero.

Nope. You do have to declare all transactions. You are not doing it, because you know it could raise questions.

The ZH tax office has a job opening to join them as “Wertschriftenprüfer”. They can’t seem to find anyone. Even the Tagesanzeiger already wrote an article on this: Zürcher Amt begeistert mit Inserat

I quote: “Die zwei offenen Stellen sind seit vergangenem Herbst vakant.”

Yeah I mean, who wants to work for the government? And even worse, who wants to work for the tax office? I mean, if you’re skilled in that area who would want to waste their time with something as meaningless as helping the government to pull money out of people’s pockets. Even just thinking of it is so disturbing that a chill runs down my spine.

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Agree that the tax declaration forms ask for purchases/sales (incl. date) but this might just be necessary to (auto)calculate any potential dividend income. I have trouble finding any official indication (not a cash.ch article) in the Wegleitung zur Steuererklärung (tax filing guide) or any laws that actually state that intra-year sales/purchases (that didn’t produce div income) have to be listed.

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… it seems, that there are cantonal differences: In BE e.g. there is no way to declare a “buy date” (there is a “sell date” only). There are two tings relevant: Value as of 31.12 and the “taxable returns” (e.g. dividends) throughout the year.

There is also no indication in the “Wegleitung” to declare all transactions (Steuerwert and Dividenden/Erträge)