I took an aggressive leveraged run when the market bottomed out and am currently up 265k over my basis. I am terrified of hanging on for a year to wait for gains to turn to capital gains. I would normally be okay with banking some of the short term gain, but this year I am selling a rental property that will generate a pretty big gain. I was hoping to come up with strategy that could kick the can to 2020 of the bulk the gain towards next year. If there is some loss factor I am okay with that . I was thinking of doing an aggressive Jan 2020 bull run on the Russell and a bear run on the Nasdaq or vice versa. Any feedback/advice would be greatly appreciated. I use IB and have a portfolio margin account, currently, my NAV is 1,205Mil, but I have 1.46Mil margin loan with them.
This is what you have to ask yourself........... In your portfolio, what symbols have gains? What hedge would be highly correlated but not come under the IRS code for stopping the timing of getting to one year? What is the cost of that hedge? Do you have losses you can use right now to offset gains? What is the cost of the loan vs the savings of a full hedge today to get to Long term gains? -in theory if you could. You are only saving the rate difference and will have a true cost. Does your trading structure allow you to write off interest? Bob
I forgot one. If you expect this is the time to take profits, that would free up you to take other opportunities. What will you miss out on while you hold a positions you no longer want for the next year?
I don't really have any positions that have losses or at least nothing close to 265k. Unfortunately right now I don't have a tax status that allows me to expense the interest, so at a minimum I want to liquidate the 1.46mil in positions I hold. That still leaves me with my NAV of 1.205 mil to work with. I also don't hold any positions in indexes or funds. Only individual stocks. What I'm inquiring about is taking on new opposite positions in indexes that are highly correlated. A slightly in the money bull run on one index using calls and a slightly in the money bear run on another using outs. My risk here would be that if the indexes move in substantially directions. Or is there an easier way to accomplish what I'm trying to do?
I can't give trading advice, but I can speak in general terms. You can look for an index to short to "reduce" individual stock risk, but over the next year, the cost of that hedge might exceed the difference in tax rates or might not offset individual stock risk. If you short a cash settled DITM calls, it will offset your margin cash balance to reduce interest charges, but will tie up more margin as they do not offset margin. Being that it is only mid feb, I would likely close the positions, set aside tax money and move on. You are risking losses by not locking in gains you seem ready to take and tying up margin which has an opportunity cost.
Now, that you have explained what you are holding, it makes it easier to craft an answer. Since, you are holding stocks, what you probably, want to do is hedge your positions with a married put. That is buy a put option to protect your stock in case, the price drops like a rock. A put option will still allow that stock to keep going up in price and pile on more gains. However, the put option like insurance for your car will cost you something. That is the cost of the premium. So, if say XZY stock is at $50, you can buy a put option good for the next 20 days say for $300 and that guarantees you can get out at $50 and sell it at that price even if the stock tanks and drops to $30. As your stocks keep going up, you can keep rolling up your put options and placing new ones to replace the original put and sell it for its nominal value or close it. If it is already practically, worthless, allow it to expire and save your commission.
Locking in this gain will save you *much* more grief than avoiding a tax bill. You need to make a table of what your choices are, and fill that table in with the tax consequences per scenario. Don't forget 1256 contracts, should that be advantageous. Pricing out the initial tax bill, and then the cost of ITM puts for the period in question, would do much to answer uncertainties. The *biggest* thing is to insure no gaps: to have the market turn, but your hedge (which cost you good money) only protecting 25ยข for every dollar lost... THAT would just suck. Scenario scenario scenario...
You may also, buy put options on the SPX, SPY, QQQ to hedge your positions. The difficulty being how many contracts should you buy to insure your positions on the long side considering each stock trades independently on its own and the value of each stock is different. Since, you have substantial gains, you probably, will want to buy enough protection on the downside but, do not expect it move lock step with your stocks. What you will be insuring now is the indexes not to drop by so much that it hurts your stock positions.
I would close out all my current positions now and book the 265k in short term profit. Essentially what I am looking at are utilizing leap options and building a box spread with expirations in 2020 where both runs are split amongst 2 different indexes, but with high correlations. I would put the bull run on one and the put bear on another. With Jan 2020 expirations I can close out in Dec 19 either the bull or put spread that is at a loss and then hold onto the other to close out in 2020. Any thoughts on this strategy?
Lost monies trading options spreads so, not sold on it! I would just follow the trend and buy calls as long as the market kept going up. Once, it starts going down, sell the calls and take your profit and buy some puts. Trend following is simpler and makes more sense. Since, you are trading with the trend, odds would favor you making monies. Your risk is always capped to the cost of the option premium on a worst case scenario.