An Option is a contract which gives the buyer the right, but not the obligation, to buy or sell an underlying asset or instrument at a specified strike price on or before a specified date. The buyer pays a premium to the seller for this right. The seller has the corresponding obligation to fulfill the transaction if the buyer exercises the option.
Options are a legitimate and allowable investment in an SMSF. However, there are a few things that Trustees need to have in place before they invest in options. These include checking the Trust Deed, and having in place a Derivatives Risk Statement and an Investment Strategy which describe the use of options.
An Option is a CGT asset as defined in subsection 108-5(1) of the ITAA 1997. The ATO IDs note that options transactions should be treated on a capital account. The treatment of option income and expenses is explained in the following two ATO IDs:
To find out what other type of investments you can make within your SMSF, visit our Investments page.