Mr.Saver's Long-term Leveraged Investment Strategy Using LEAPS

Alexland

Mr.Saver said:

If the past performance is a reliable indicator for the future, then the answer probably is yes. "market timer" did it in 2007, and the market crashed right after that. I did it in February, and the market crashed again right after me. It can't be a coincident.

Now even the cat's looking worried...

ftmo

Mr.Saver said:

MichaelFinance1987 said:

Hi,
I actually have a PhD in Economics and I work in financial services. I am well aware of the risks, I am simply looking for the best brokerage account that lets me trade LEAPS in the UK. Interactive Brokers seems a bit "too pro"
I am wondering if there is an alternative

Honestly, if the EU regulations don't apply, I'd use Interactive Brokers. But the IB group has a registered company in the UK, and unfortunately all UK residents applying for an account will be directed to the IB UK, where the EU regulation applies, so I, a retail investor, can't trade options on IB.

May I ask if you actually tried to place a trade on IB and was prevented from doing so? My understanding is that the US OCC  has released a KID for EU investors (you can find this by searching OCC KID on google), and so has thereby complied with the PIIRPS requirement, and hence you should be able to open a position on IB. Even for emerging market options like on the SENSEX, IB has created its own KID. The only thing is that you can\t exercise the option and take delivery of the underlying asset if it is an ETF (but not if it's a share) because most US ETFs don't have KIDs (IB will liquidate it immediately). I assume you would want to sell the option before expiry anyway.

I understand that UK retail investors are not allowed to trade binary options, but I suppose that is a different matter that do not apply to 'vanilla' options.

Are you paying tax at 40% because you are doing the whole thing overseas and therefore it would be considered as overseas income?

Mr.Saver

ftmo said:

Mr.Saver said:

MichaelFinance1987 said:

Hi,
I actually have a PhD in Economics and I work in financial services. I am well aware of the risks, I am simply looking for the best brokerage account that lets me trade LEAPS in the UK. Interactive Brokers seems a bit "too pro"
I am wondering if there is an alternative

Honestly, if the EU regulations don't apply, I'd use Interactive Brokers. But the IB group has a registered company in the UK, and unfortunately all UK residents applying for an account will be directed to the IB UK, where the EU regulation applies, so I, a retail investor, can't trade options on IB.

May I ask if you actually tried to place a trade on IB and was prevented from doing so? My understanding is that the US OCC  has released a KID for EU investors (you can find this by searching OCC KID on google), and so has thereby complied with the PIIRPS requirement, and hence you should be able to open a position on IB. Even for emerging market options like on the SENSEX, IB has created its own KID. The only thing is that you can\t exercise the option and take delivery of the underlying asset if it is an ETF (but not if it's a share) because most US ETFs don't have KIDs (IB will liquidate it immediately). I assume you would want to sell the option before expiry anyway.

I understand that UK retail investors are not allowed to trade binary options, but I suppose that is a different matter that do not apply to 'vanilla' options.

Are you paying tax at 40% because you are doing the whole thing overseas and therefore it would be considered as overseas income?

Yes. I have tried to place an order for the SPY options, and I was prevented from submitting the order and had been shown a link to PRIIP help page. I wasn’t able to submit the order and I had contacted the customer support, they confirmed that I cannot be classified as a professional investor and therefore cannot trade SPY options on their platform. I don’t know whether the OCC KID covers options on ETFs. OCC provides a list of KIDs for equity options, index options, debt options and forex options, but does equity options include ETF options? I don’t know. Btw, when I tested IB, I was allowed to place orders for individual company shares options. I don’t know if this is relevant.

I’m not paying 40% tax on capital gains from option trading. I think the 40% tax you’re referring to was in a comment about the SPY ETF doesn’t have the UK reporting status, and because of that, the gains from trading the ETF (not options) is subject to income tax, instead of the more favourable CGT. 

ftmo

Mr.Saver said:

Yes. I have tried to place an order for the SPY options, and I was prevented from submitting the order and had been shown a link to PRIIP help page. I wasn’t able to submit the order and I had contacted the customer support, they confirmed that I cannot be classified as a professional investor and therefore cannot trade SPY options on their platform. I don’t know whether the OCC KID covers options on ETFs. OCC provides a list of KIDs for equity options, index options, debt options and forex options, but does equity options include ETF options? I don’t know. Btw, when I tested IB, I was allowed to place orders for individual company shares options. I don’t know if this is relevant.

I’m not paying 40% tax on capital gains from option trading. I think the 40% tax you’re referring to was in a comment about the SPY ETF doesn’t have the UK reporting status, and because of that, the gains from trading the ETF (not options) is subject to income tax, instead of the more favourable CGT. 

I'm researching the option question at the moment, but so far my understanding is that equity options on OCC do include ETF ones (Some European exchanges on the other hand, do differentiate between the two and have separate KIDs). 
IB might have flip flopped on their rules a bit. It seems there was a time around early 2018 when ETF options weren't allowed for a short while, because they were figuring out how to enforce the PRIIP regulations. Around what time did you attempt the option trade on IB? Was it this year? 2018? 2019?

Thanks for the info on the tax. Very helpful.

Mr.Saver

ftmo said:

Mr.Saver said:

Yes. I have tried to place an order for the SPY options, and I was prevented from submitting the order and had been shown a link to PRIIP help page. I wasn’t able to submit the order and I had contacted the customer support, they confirmed that I cannot be classified as a professional investor and therefore cannot trade SPY options on their platform. I don’t know whether the OCC KID covers options on ETFs. OCC provides a list of KIDs for equity options, index options, debt options and forex options, but does equity options include ETF options? I don’t know. Btw, when I tested IB, I was allowed to place orders for individual company shares options. I don’t know if this is relevant.

I’m not paying 40% tax on capital gains from option trading. I think the 40% tax you’re referring to was in a comment about the SPY ETF doesn’t have the UK reporting status, and because of that, the gains from trading the ETF (not options) is subject to income tax, instead of the more favourable CGT. 

I'm researching the option question at the moment, but so far my understanding is that equity options on OCC do include ETF ones (Some European exchanges on the other hand, do differentiate between the two and have separate KIDs). 
IB might have flip flopped on their rules a bit. It seems there was a time around early 2018 when ETF options weren't allowed for a short while, because they were figuring out how to enforce the PRIIP regulations. Around what time did you attempt the option trade on IB? Was it this year? 2018? 2019?

Thanks for the info on the tax. Very helpful.

I just tested it again today, and IB still won't allow me to trade either the ETF or the options. Here's the message from IB TWS:


And, of course, IB is well aware of the existence of the KIDs:

Mr.Saver

Because S&P 500 has exceeded 3300 points, I rebalanced the portfolio to maintain the 2x leverage.

Malthusian

Any chance of an update on where you stand now in terms of holdings?

Sorcerer2018

MichaelFinance1987 said:

Hi,
I actually have a PhD in Economics and I work in financial services. I am well aware of the risks, I am simply looking for the best brokerage account that lets me trade LEAPS in the UK. Interactive Brokers seems a bit "too pro"
I am wondering if there is an alternative

Issac Newton was clever too, and he lost loads of money on the stock market.

Mr.Saver

Malthusian said:

Any chance of an update on where you stand now in terms of holdings?

It's in the comment https://forums.moneysavingexpert.com/discussion/comment/76843235#Comment_76843235
At the moment I hold 1 SPY 2022 DEC 165 CALL option and 5 VOO ETF.

Mr.Saver

There's a bit change of plan.

The company I work for has announced that work from home is going to be a permanent option for most employees. Because of that, I'm thinking of moving to somewhere away from inner London where I currently live. The house price outside London is a lot cheaper, and there's also predictions of house price downward pressure in the first half of 2021. It feels like an opportunity for me to get onto the property ladder.

To plan for that, I've began to cash in my investments for the deposit, and will keep the cash in a savings account till needed for the purchase. I'm selling investments outside tax wrappers first, which includes the options I hold.

For your information, the market has gone back to pre-crash level, with S&P 500 opening at about 3370 points today. I've made a very small gain by selling everything today, but the cost of oversea money transferring and currency exchange most likely will wipe out the gain.

I'll keep this post updated with virtual trades from today, price based on the quotes from https://finance.yahoo.com/quote/SPY/options?p=SPY . I'll ignore the cost of the brokerage account, because the cost is very insignificant - less than $2.00 to buy, hold and then sell an option contract, and less than $0.03 for a ETF listed in the US, no other fees unless adding money to or taking money out of the brokerage account.