RT Journal Article SR Electronic T1 Can Individual Investors Use Option Strategies and
the Tax Code to Their Advantage? JF The Journal of Wealth Management FD Institutional Investor Journals SP 47 OP 52 DO 10.3905/jwm.2017.20.1.047 VO 20 IS 1 A1 Bryan Foltice YR 2017 UL https://pm-research.com/content/20/1/47.abstract AB 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