For now it’s in my bank and for now no negative yealds (I’ve got a good relationship with the manager). He’s tried selling me the usual expensive crap that banks propose but I refused. I wanted to just buy high dividend stocks and some etfs but as I said I feel unconfortable at these prices. So I thought that selling put options on stocks I already selected to own in the future was easy money. Of course I needed to try the strategy in real life and not in paper account but knowing that I would be charged negative rates I won’t bother.
When you say “risk” of selling put options, from my understanding the only risk is owning the stocks if the contract is exercised, or are there other risks involved that I’m not aware of?
I think you diagnosed the problem and have a good outline of a solution but it needs fine tuning.
Here is what I would do which perhaps might trigger ideas
The “problem” is 1.5M CHF burning a hole in your pocket. Statistically stocks return 7% pa over the long term so you are “losing” 105k/yr. Returns over the past decade have been almost double this due to the same central bank policies which penalise you for having cash, and which still continue.
The other problem is the risk of investing at the top of the market. A lot of folks quote the theory to invest it all in one go. But age 50 and no employment income… too risky for me
Option 1)
Resolve to set up a monthly investment at IB - Dollar Cost Averaging – and set a time limit of one month to start. Perhaps 100k /m or you can choose a shorter or longer time period to get fully invested. If in doubt what to buy you could choose VT (Total World). The dealing costs in IB are so low and you can always change later
Do not worry about the US dividend Witholding tax, this is a detail. You can sort it out at tax time or pay someone to do your tax return. If you buy UK stocks I am not sure it is a better solution anyway as you have to pay UK stamp duty
You should almost definitely not be 100% stocks at the end of this process, but if you are 100% cash now I would buy 100% stocks this month and refine later (I’m assuming you may have 2 Pillar or perhaps own property too )
Once you decide the above, the idea of selling put options to generate income is a good one for folks not resident in CH. The problem is that it leaves you open to being classed as a professional investor for taxes (there are separate threads on this). Perhaps the tax office would be ok with the approach, but I have stopped doing selling put options myself
Option 2) [EDIT: Per input from REandstock below this in not a good option]
Contact a private bank and ask them if they can build a position for you gradually and also ask them to generate income on the idle cash (e.g. put options). The fees will be higher but without the tax risk because by outsourcing the execution you are clearly not a professional investor. Once the position is accumulated, you could decide to stay with them or move to IB and manage it yourself. I believe for 1.5M UBS or CS private banking team would be interested in you. Give them a call and see what they have to offer. Nothing to lose other than time
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One thing to be aware of, focusing on dividends might not be the best approach if you’re taxed in Switzerland. Dividends are taxed capital gains are normally not taxed. Dividends look good at first because you don’t need to sell anything but in the end it comes to the same result.
E.g. You have Stock A at cost 10 CHF that pays 1 CHF dividend and price stays stable
You also have Stock B at cost 10 CHF that has no dividend but the price increases to 11 CHF
Both of them give you the same gain. For A you get it directly, for B you have to sell a bit. Difference is that A is taxed and B is free
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Hi Marco,
Selling OTM put options for skewness has been popular in the FIRE community.
One very famous FIRE blogger has 6-7 posts where he clearly describes how he sells weekly OTM puts on SPX or \ES.
You can find the strategy here: Trading derivatives on the path to Financial Independence and Early Retirement – Early Retirement Now
Also, you can convert your cash CHF to cash USD and then put in short term bonds.
I have been selling puts on index in my IBKR account for some time and I find IBKR very good with respect to options and margins.
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This is not correct. From circulaire no. 36 :
Enfin, que le contribuable effectue lui-même les transactions sur titres ou par l’intermédiaire
de tiers dûment mandatés (banque, fiduciaire, etc.) n’est pas déterminant (Archives 71 627;
69 652 et 788; 67 483; 66 224). Le comportement de ces tiers, qui agissent en qualité
d’auxiliaires, est imputé au contribuable: le succès (ou l’échec) des opérations réalisées
déploie en fin de compte des effets sur la capacité contributive du contribuable qui a
mandaté ces tiers (Archives 63 43). Dans sa jurisprudence la plus récente, le Tribunal
fédéral a confirmé expressément le principe d’après lequel les actes du tiers mandaté sont
imputables au contribuable (ATF 2C_868/2008, consid. 3.4).
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Thanks - wow, there is even jurisprudence on this.
This looks like a non-CH blogger not subject to the CH tax impilcations
That’s correct. The blogger lives in the USA and is subject to US tax laws.
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@marcocheda
Few points:
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Simplicity. I agree with many here, simplicity is key to success. Why not going for a simpler option, e.g combination of high yield ETF like vanguard +/- bonds
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Taxation. Beauty of Switzerland is that capital gain are not taxed while dividends are. You are almost better off selling shares of high performing ETF than paying taxes on dividends. Pls note in CH some companies try to pay capital gain to investors and less dividends to circumnavigate the taxation
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None can predict the future. You are assuming prices are high and therefore using options to enter later at lower price following a correction. This correction may never occur and you may lose another 10 years.
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Diversification. Options and potential ownership of some stocks look a risky / concentrated investment, especially if you have been inactive for 10 years. I would go for a high yield ETF (Vanguard FTSE All-World High Dividend Yield UCITS ETF Distributing). Yield is less than you need but you can sell shares to cover your expenses or leading to next point, work longer
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Work longer. You accumulated great wealth. Perhaps you work another couple of years and with that you will get a portfolio large enough that with a high yield vanguard etf is enough to generate enough cash flow closer to your needs
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Private banking or financial advisor fee based advice. Usually these are expensive. UBS & CS will need 2/2.5 mil to open you the door but still you would be at the low end of their attention. Maybe try something like Vontobel and ask what they propose you to get to your desired cash flow. Or invest a few thousand CHF with a financial advisor paid on fee and not as % of your investment to pressure test your idea. I am sure he/she would recommend a simple ETF/bond solution
Lastly paper money never equal real money. Good to get some feel on how this works but the pressure is different when your whole pot is at stake.
Good luck! And hope you can find a good solution for your hard work money
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More radical choice, but location arbitrage for a few years, permanent or intermittent, may also help in making your high yield ETF be perfectly suitable for great quality of life, if the aim is to wait for a downturn while conserving capital.
(research tax and other implications first)