A Section 1256 Contract Trading Firm

About the Firm

Green Ocean Capital Group is a Section 1256 option trading firm that specializes in trading S&P 500 Index Options (SPX). The firm was started in Tampa, Florida and has been operating within the IRS code for Tax Trader Status since 2019 under its parent company Spotted Cheetah, LLC. Green Ocean Capital Group provides a benefit to the stock market by providing liquidity to cash settled option contracts for the S&P 500 Index. The firm also provides a benefit to the market since trading these options ensures the illiquidity ratio is decreased by our trading activity which ensures greater price depth.

What Is a Section 1256 Contract?

A Section 1256 contract is a type of investment defined by the Internal Revenue Code (IRC) as a regulated futures contract, foreign currency contract, non-equity option, dealer equity option, or dealer securities futures contract. What makes a Section 1256 contract unique is that each contract held by a taxpayer at the end of the tax year is treated as if it was sold for its fair market value, and gains or losses are treated as either short-term or long-term capital gains.

How Section 1256 Contracts are Traded

A Section 1256 contract specifies an investment made in a derivatives instrument whereby if the contract is held at year-end, it is treated as sold at fair market value for year-end. The implied profit or loss from the sale are treated as short- or long-term capital gains or losses. Section 1256 is used to prevent manipulation of derivatives contracts, or their use thereof, to avoid taxation thereby, never having to leverage our positions with an underlying stock or etf.


S&P 500 Index Options


S&P 500 index options are option contracts in which the underlying value is based on the level of the Standard & Poors 500, a capitalization weighted index of 500 actively traded large cap common stocks in the United States. The S&P 500® index option contract has an underlying value that is equal to the full value of the level of the S&P 500 index. The S&P 500® index option trades under the symbol of SPX and has a contract multiplier of $100. The SPX index option is an european style option and may only be exercised on the last business day before expiration.

How We Profit

Our firm specializes in Trading SPX style contracts. These contracts are cash settled and fall under the Section 1256 qualification. Cash settled options differ from those of traditional options since the firm is not required to hold an underlying security when trading this type of option contract. Additionally, these contracts are S&P 500 market specific and follow the index using cash settled positions. Profit is made when the buying or selling of certain option legs have occured and the market moves within the predicted direction. At the end of expiry, the option is then settled in cash so the firm takes on less risk than traditional option contracts since there is no risk of underlying positions being exersized and forced to buy or sell.

Example: Buy SPX Call Option (A Bullish Strategy)

If you observed that the current level of the S&P 500 index is 815.94. The SPX is based on the full value of the underlying S&P 500 index and therefore trades at 815.94. A near-month SPX call option with a nearby strike price of 820 is being priced at $54.40. With a contract multiplier of $100.00, the premium you need to pay to own the call option is thus $5,440.00. Assuming that by option expiration day, the level of the underlying S&P 500 index has risen by 15% to 938.33 and correspondingly, the SPX is now trading at 938.33 since it is based on the full value of the underlying S&P 500 index. With the SPX now significantly higher than the option strike price, your call option is now in the money. Since S&P500 index options are derivatives the increase in gains on the index is exacerbated thereby privding significantly more profit to the firms Long position on the market.

Why Green Ocean Capital Group was Formed

Trading as a Business versus as an Individual (taken from Green's 2021 Trader Tax Guide)

By default, the IRS lumps all traders into “investor tax status,” and investors get penalized in the tax code — more so with TCJA. Investors have restricted investment interest expense deductions, and investment fees and expenses are suspended. Investors have capital-loss limitations against ordinary income ($3,000 per year), and wash-sale loss deferrals. Investors benefit from lower long-term capital gains rates (0%, 15%, and 20%) on positions held 12 months or more before sale. If active traders have segregated long-term investment positions, this is available to them as well. Business traders eligible for TTS are entitled to many tax breaks. TTS trader deducts business expenses and is entitled to elect Section 475 MTM

ordinary gain or loss treatment.


Green Ocean Capital Group

15017 North Dale Mabry Highway #1268

Tampa, FL 33618

United States

inquiries: greenoceancapital@mail.com


© 2019-2024 Green Ocean Capital Group and Spotted Cheetah, LLC. All rights reserved.