"Cal Learner-- MVP" <via_newsgroup[at]please.tnx> wrote in message
news:lm4tc4tmrmecnitdesetl01ur0g964i0ef[at]4ax.com...
- quote -


Well, I asked a more complex question than I realized. Thanks for the info,
which I'll take as a warning.

I think I'll deal with these as equity options, at least for the time being.
It probably won't matter much since the dollar amount involved is small. But
if I get more into this, I'll have to pay more attention to tax
consequences.

In microsoft.public.money, Paul Pedersen wrote:

- quote -

I think a difference is whether it is cash-settled or if exercised
the ETF is delivered. I would guess it would be an equity option
where you would receive/deliver the ETF, but I don't know.

The other distinction is whether the 60/40 rule applies. From
http://www.armencomp.com/options-capital-gains.html :
-------------------
There have been many conflicting opinions as to whether QQQQ, DIA,
and SPY options should be treated as section 1256 contracts or not.
Since these do not settle in cash, as do most section 1256
contracts, some suggest that these are not section 1256 contracts.
Others feel that they meet the definition a a "broad-based" index
option and therefore can be treated as section 1256 contracts.

The IRS is not clear on on this, so we defer to the tax
professionals, such as Robert A. Green, CPA. On his
www.GreenTraderTax.com web site, under the Securities vs.
Commodities topic, Green defines these as securities, and not
section 1256 contracts. See: Securities vs Commodities under the
sub-heading "Securities traders pay higher taxes."
-------------------------
If an option on QQQQ or SPY is borderline, then an option on a less
broad-based ETF would seem to be less borderline.

It would be interesting know what you decide after further research.
I might inquire into misc.taxes.moderated. Let the tax treatment
decide. Now I don't know if Money has any knowledge of the 60/40
rule anyway. That may be a checkbox on the tax program.

The investment is an option on an ETF. The ETF is a DJ index on a particular
sector.

When entering the option in Money, should I call it an "equity option" or an
"index option"? Does it matter?