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Effects of taxation for option writers: an Australian perspective

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  • Karen Alpert
  • Warren James Knight

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

  • Karen Alpert & Warren James Knight, 2007. "Effects of taxation for option writers: an Australian perspective," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 47(1), pages 23-45, March.
    • Handle: RePEc:bla:acctfi:v:47:y:2007:i:1:p:23-45
    DOI: 10.1111/j.1467-629X.2007.00210.x
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    References listed on IDEAS

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    4. Jayaraman, Narayanan & Frye, Melissa B & Sabherwal, Sanjiv, 2001. "Informed Testing around Merger Announcements: An Empirical Test Using Transaction Volume and Open Interest in Options Markets," The Financial Review, Eastern Finance Association, vol. 36(2), pages 45-74, May.
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