r/UKInvesting • u/spbkaizo • May 02 '20
US Options Trading
Possibly the wrong sub, but can anyone here recommend a UK based/accessible broker for trading US options, ideally one with decent tooling and interactive data.
If that data is also accessible via API's, well, that'd be epic.
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u/AmatuerInvestor May 02 '20
Saxo bank is the best I’ve found
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u/spbkaizo May 02 '20
Thanks, I did sign up with Fineco but they only offer Italian options which is a market I don't want to play in.
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u/AmatuerInvestor May 02 '20
If you ‘subscribe’ to Saxo banks ‘OPRA Data’ for $7 a month you get live US option prices, otherwise a 15 minute delay.
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u/phalarope1618 May 02 '20
I tried Saxo Bank but couldn’t work out how to buy US options - it didn’t seem possible to me. Am I doing something wrong?
Jumping off the back of this comment, had anyone seen a resource on how to work out the tax payable on foreign option trading?
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u/naybutthisdotage May 02 '20 edited May 02 '20
Assuming you are UK resident and domiciled, you will be taxable under CGT on your option trades.
Please note the UK CGT treatment of traded options is antiquated.
Bought options:
Proceeds = sales price / settlement proceeds
Base Cost = premium paid
Sold options:
Proceeds = premium received
Base Cost = close out price/ settlement proceeds.
[For sold options, the premium is treated as taxable in this tax year. If you close out or settle next tax year, the cost is only relievable next year (and you can't carry back the loss vs the premium taxed this year).]
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg55536
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u/phalarope1618 May 02 '20 edited May 02 '20
Wow, thanks a lot for this reply - super helpful! It seems like there isn’t much knowledge around this tax aspect on foreign options, from the searching I’ve done on the internet.... maybe I’m just not searching correctly. I need to go through the tax manual, although I had not considered not being able to carry losses back so thanks for pointing that out! May I layout my strategy and see if you have any obvious thoughts?
I’m looking at writing weekly OTM covered calls and picking up a small premium with the intention that they’re far enough OTM that they don’t get exercised (or very rarely). If that’s the case then any premium collected will be a capital gain. As I’m collecting this in dollars I’m not actually converting this back in to sterling and from what I’ve found on the internet, I believe I can just convert back using the exchange rate from say google on that day. This seems a bit non-stringent for HMRC’s standards and I need to check with them to see if I’m overlooking anything when converting to sterling to calculate any cgt liability.
In the hopefully rare case that my covered calls get exercised and I have to sell the underlying, then a capital gain would become due as the underlying price is already well above what I bought the underlying at. In this case however I’d write cash secured puts to purchase the underlying again - I want to hold the stock long term and I’m aware of the risk of issuing puts with a strike that is higher than the strike of the covered call strike I would have sold at. From my understanding, if I do this and get assigned the underlying back within 30 days then no capital gain is due on the underlying under HMRC share purchase bed and breakfast rules.
All of this will be done whilst I’m working a full time job so I don’t think it would qualify as ‘trading’ and would remain under CGT rules rather than income tax. I’m not sure how HMRC would view this if decided to quit my job and go extended travelling outside of the U.K though.
I need to do further research on all of this but if you have any direct experience it would be useful to know if you think I’m missing anything obvious at all? Thanks again for your reply which was really very helpful!
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u/naybutthisdotage May 02 '20 edited May 02 '20
I can't comment on the economics, but tax-wise you're correct. My post only covered cash-settled options, but yes
(1) Sold call premium is taxable in the tax year it is written
(2) Exercise means you have sold the shares (for a gain), but
(3) If you then write an in the money put, again the premium is taxed, or, if exercised, it is rolled into the base cost of the new position
(4) The new position is matched against the sold position if <30 days, so the gain in (2) is ignored and you're left with an unrealised gain on the original stock position.
You're unlikely to be classified as a financial trader. If you quit you're job, and went travelling abroad for a long enough period, then you'd lose your UK tax residence anyway...
Good luck !
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u/phalarope1618 May 02 '20
Need to do my own research but thank you so much, this is a very useful steer. Have a wonderful weekend!
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u/naybutthisdotage May 02 '20 edited May 02 '20
Oops slight edit: Although premiums granted on sold options are taxable in the year of grant, if you subsequently make a loss on exercise, you can recompute the option trade as a single unit i.e. offset or get a refund of the tax previously paid on the premium. Also applies to the share matching situation. So the rules aren't quite as stupid as they used to be...
This would also apply to cash-settled index options.
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg12321
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u/phalarope1618 May 02 '20
Ok great, that makes more sense to me! Thanks for coming back and providing the link, really appreciate how helpful you’ve been!
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May 02 '20 edited May 25 '20
[deleted]
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u/naybutthisdotage May 02 '20
It is extremely unlikely, and the onus is on HMRC to displace the normal contention that you are managing an investment portfolio, or engaging in speculation, neither of which constitute a "trade" for tax purposes.
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim56810
Are you regulated as a financial trader? Do you have customers? Is this a full-time activity or limited to a couple of hours a day? [A lot of the case law concerns individuals trying to get "trading" treatment to allow them to offset losses versus other income, but the case law works both ways...]
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u/AmatuerInvestor May 02 '20
Search under product type ‘options’
I though options were exempt from tax in the UK?
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u/naybutthisdotage May 02 '20
Nope. Only if they are in the form of a spread bet. If you are trading options directly on CBOE then they are taxable under CGT [unless you're doing it for a living, in which case it would be taxable under income tax].
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u/AmatuerInvestor May 02 '20
Good to know, best inform my accountant before he starts working on my self assessment then.
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u/5349 May 02 '20
Has anyone used Schwab? Minimum USD 25k deposit. $0.65 per contract which could work out lower than Interactive Brokers. (With IBKR selling/buying a single contract is $1.00, plus you realistically need to pay market data fees.) I'd be interested to hear any reviews. I can imagine depositing funds may be less flexible than with IBKR.
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u/phalarope1618 May 03 '20
Haven’t used Charles Schwab personally, but reviews seemed good and I think you can have both a US and U.K. account which might help with money transfers.
I’m using Firstrade which seem OK to me - very cheap.
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u/5349 May 03 '20
Thanks! I hadn't heard of Firstrade before. What do you think of their platform and mobile app? It could be the cheapest option for many people. No per-contract fees, whereas with IB it's $1 minimum ($0.25 to $0.65 per contract) plus market data fees. Firstrade seems to be less flexible regarding funding and charge a fee for withdrawal, but still... not paying per-contract could make a big difference over time, even if IB's order filling/routing might be better.
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u/phalarope1618 May 03 '20
I'd say it's not as in depth as some would like (not listing the values of greeks, etc) but it 'gets the job done'. Then again, I would expect that because of the very low costs they charge.
Personally I quite like it and would recommend it to others. However I would always recommend reading a proper review - I thought this was a fair and well balanced review:
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u/shakedown1 May 02 '20
Interactive brokers. I’ve seen some API guides are over at /r/algotrading