Effects of Taxation for Option Writers: An Australian Perspective

23 Pages Posted: 27 Feb 2007

See all articles by Karen Alpert

Karen Alpert

University of Queensland - Business School; Financial Research Network (FIRN)

Warren James Knight

University of Queensland - Business School

Abstract

Writing an option is a taxable event for Australian investors. This method of taxation penalizes investors who hold open short option positions over the tax year end by accelerating their tax liability relative to the timing of the economic gain from writing options. This paper examines the levels of open interest in the Australian Stock Exchange over the change in financial year to determine whether investors time their transactions to avoid this tax acceleration. The results show that level of open interest is lower in the last month of the financial year after controlling for non-tax determinants of option demand.

Suggested Citation

Alpert, Karen and Knight, Warren James, Effects of Taxation for Option Writers: An Australian Perspective. Accounting and Finance, Vol. 47, No. 1, pp. 23-45, March 2007, Available at SSRN: https://ssrn.com/abstract=965900 or http://dx.doi.org/10.1111/j.1467-629X.2007.00210.x

Karen Alpert (Contact Author)

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Warren James Knight

University of Queensland - Business School

Brisbane, Queensland 4072
Australia

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