US Options - Do any ISAs support this?

ProMPTT001

Hi,


Simple question. Are there any ISAs out there that allow Options to be traded in the US stock market, i.e. the purchase of shares and the buying and selling of the associated options.


Thanks
Kevin M

SomeUser

I doubt it, because they aren't actual investments - you don't own anything tangible (unless or until you exercise the option).

SomeUser

The purchase of shares however, is available on a few platforms within an ISA. I use interactive investor.

bowlhead99

You can see what type of investments can be held in an ISA in section 7 of hmrc's guidance http://www.hmrc.gov.uk/isa/isa-guidance-notes.pdf . Options are not one of them.

You can of course hold US shares in the ISA and options outside an ISA (or use spreadbets for example, where they'd be tax free). But you couldn't easily move money in and out of the ISA wrapper unlimited times like you might want to in pursuit of your strategy. That may or may not bother you depending how much cash you have access to outside the wrapper.

ProMPTT001

All good stuff. What I am looking to do is hold the stock in the ISA and sell the options. Can I do that from within the ISA and which ISAs? I do not want to buy options as that is far took risky.....

SomeUser

You don't want to buy options, but you want to buy stock and sell the options. Why do you think the latter is any less risky?

bowlhead99

ProMPTT001 wrote: »

All good stuff. What I am looking to do is hold the stock in the ISA and sell the options. Can I do that from within the ISA and which ISAs? I do not want to buy options as that is far took risky.....

What? You don't want to *buy* options as it is too risky? Buying an option, you pay a known amount of money to either acquire or sell an asset at a known price, if you want to. It is at your OPTION whether you choose to exercise the contract that you acquired.

So you've laid out some money to buy an option and it may have a future nice value if you want to sell it on to someone else or exercise it yourself. Your downside is that the option you bought may expire worthless. The risk is entirely known and quantifiable because you know how much you paid for the option that may expire worthless.

The other thing you can do is *sell* options.

If you sell a call option to someone that allows them to buy shares from you at a known price, you will receive some cash but you are granting them the ability to force you to sell to them at this known price. That ability will allow them to take your shares off you for $1000 when they are later worth $5,000, losing 80% of your assets. Or when they are worth $100,000 losing 99% of your assets. Consequently what you are giving up for the fixed cash you received, is unknown, making it very risky.

Alternatively you could sell a put option that gives them the ability to sell you shares at a known price. However the value of the shares when they sell them to you could be zero, and you can lose many multiples of what you received from them when you sold them the option contract. Again, risky.

So, selling options is risky whether or not you hold the underlying shares. Merely buying options is not risky, because the worst that can happen is that you lose the money you spent on the option. Obviously if you spend your entire life savings on something you know could expire worthless, that is a risk.

Perhaps you have a different idea than we do about what you mean. But basically, you can't have options in an ISA as already mentioned above and explained in the HMRC document I linked. ISAs are Individual Savings Accounts, a tax protected wrapper that can hold cash, funds, certain company securities, government securities and so on.

IronWolf

ProMPTT001 wrote: »

All good stuff. What I am looking to do is hold the stock in the ISA and sell the options. Can I do that from within the ISA and which ISAs? I do not want to buy options as that is far took risky.....

If I understand correctly, you want to sell call/buy put options on the shares in the ISA? I doubt it is possible, but you'd have to check with individual providers. Your best bet is either Saxobank or Charles Stanley, none of the usual cheap brokers deal at all in options.

ProMPTT001

IronWolf - thanks. I will give them a go.


bowlhead99 - What you say is correct in the main apart from the selling of options. If I buy stock at $100 and sell a $90 option I will at the time of sale receive the $10 difference so if the option is actioned at $90 I don't lose. Also, 99.9% of all options are not exercised before the expiration date so the risk of this happening is very low.

purch

ProMPTT001 wrote: »

If I buy stock at $100 and sell a $90 option I will at the time of sale receive the $10 difference so if the option is actioned at $90 I don't lose. Also, 99.9% of all options are not exercised before the expiration date so the risk of this happening is very low.

If you buy stock at $100, and sell a $90 Put Option, if the share price goes up you win. If the share price goes to $80 you lose twice over, as you will be holding stock at $100 and also the stock at $90, offset a little by what you will receive for selling the Put.

If you buy stock at $100, and sell a $90 Call Option, irrespective of what happens to the share price you will lose the $10 a share between what you own, and what you have to sell to fulfill your obligation but that will be mitigated by whatever you receive for selling the Call.