How to Trade Index Spreads with Tax Advantage

Preparations for paying income related taxes come with the start of a New Year. In this article, we’ll show how investors can potentially reduce their income taxes for broad based index spread trades and introduce methodologies and tools for trading broad based index spreads.

Section 1256 Contracts Marked to Market

Trading broad-based index options for taxable accounts can have some favorable consequences when paying federal income taxes. The IRS has a provision known as a Section 1256 Contracts Marked to Market. A section 1256 contract is any:

  1. Regulated futures contract,
  2. Foreign currency contract,
  3. Non-equity option,
  4. Dealer equity option,
  5. Dealer securities futures contract.

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