@article {Foltice47, author = {Bryan Foltice}, title = {Can Individual Investors Use Option Strategies andthe Tax Code to Their Advantage?}, volume = {20}, number = {1}, pages = {47--52}, year = {2017}, doi = {10.3905/jwm.2017.20.1.047}, publisher = {Institutional Investor Journals Umbrella}, abstract = {This article tests whether high-income earners can earn excess risk-adjusted returns by annually exploiting the asymmetric U.S. tax treatment of long-term capital gains and losses using at-the-money (ATM) options. In this article, we run an initial analysis that tests the returns of the previous 50 years, from 1966 through 2015, that buys $3,000 of one-year ATM call options on the S\&P 500 (SPY) to determine excess risk-adjusted returns for individuals of various taxable income levels. Additionally, we run a Monte Carlo simulation, based on long-term historical returns, standard deviations, and correlations, to test the robustness of the initial results for a risk-neutral investor. We find that call options can provide increased annual performance returns for all income levels. Furthermore, we conclude that these strategies also provide excess risk-adjusted returns for high-income earners in the 28\% and higher income tax brackets.TOPICS: Wealth management, legal/regulatory/public policy, simulations, performance measurement}, issn = {1534-7524}, URL = {https://jwm.pm-research.com/content/20/1/47}, eprint = {https://jwm.pm-research.com/content/20/1/47.full.pdf}, journal = {The Journal of Wealth Management} }