January contract expires before January??

Discussion in 'Commodity Futures' started by isaac000, Nov 21, 2006.

  1. I have long HOF7(January 2007 Heating Oil) positions, and I was always thinking I don't need to close my positions until January 2007, for tax consideration. Now I Just noticed the detail for HOF7(January 2007 Heating Oil) contract:

    Expiration Date 20061229
    First Notice Date 20070102
    First Position Date 20070102
    Last Trading Date 20061229

    It looks like the last trading day of Jan07 HO contract is before the year end. Does that mean I have to close my HOF7 contract by the end of this year? I am new to futures. Any reply is appreciated.
  2. Is there any way I can close these positions after Jan.1 2007 so I can post my gain for the 2007 tax year? Anyone?
  3. Sure, you can take delivery. Otherwise, Last Trade Date is the Last Trade Date.

    If you're using IB, they'll close the position out for you if you don't do it yourself. Also, the liquidity in the front month is going to really evaporate right before expiration, and you probably don't want to be stuck holding a futures contract when the spread goes to 1.60bid/2.00ask. :)
  4. JayS


    Since gains/losses are marked-to-market with futures & commodities why does this matter?
  5. Like I said I am new to futures trading. This may be a stupid question: what do you mean by "marked-to-market"?
  6. Think of it like cash, rather than accrual, accounting.

    If you own an ES contract and it goes up 1 point, at the end of the day, you are paid $50. The next day, you're starting with a completely clean slate. If it goes down 1 point, you pay $50. All of this is settled at the end of each and every day.
  7. I have searched on google for "Marked-to-Market", "m2m", mtm"....etc. Now I start to understand it. But it seems that if I didn't elect mtm before April 15th, I don't have a mtm status. so the mtm rule would not apply. Am I right?
  8. Surdo


    ALL futures contracts are "Marked to Market" on a daily basis.
    This has nothing to do with MTM filing status.

    If you any open futures positions on 12/29/06 their value vs. opening price is a taxable event.

    Since your open contracts cease to trade before year end you really have no choice other than close the position, or make delivery!

    Search the green trader tax website for tons of info on this.
  9. Searched through a lot of sources on this issue, still a little confused about whether it's possible to keep the 1256 contracts out of the MTM election. The following is copied from another elite post: (http://www.elitetrader.com/vb/showthread.php?s=&postid=401107&highlight=mtm+commodities#post401107)

    There are two approaches to keeping the 1256 contracts out of the MTM election. Actually, there is a third approach, but it is problematic and hence I don¡¯t want to address it. The first two approaches are clean.

    The first approach is based on the way that Section 475 defines ¡°security.¡± The way it is defined explicitly excludes 1256 contracts from the definition. See IRC Section 475(c)(2)(flush language). Hence a MTM election for your securities trading business does not cover 1256 contracts.

    The second approach is based on the clear recognition by the IRS that trading in securities vs. trading in commodities (1256 contracts) constitute two separate businesses. The Code specifically provides that MTM elections for a securities trading business and a commodities trading business are to be separately made. See IRC Section 475(f)(3).

    Given those two approaches, a taxpayer could simply take the MTM election without elaboration and rely on the Code language to exclude 1256 contracts from the election. But there are a number of things a trader can do to strengthen his position in this regard to deter any IRS argument¡ªin much the same way as one can wear a certain religious accoutrement to ward off werewolves.

    The first thing a trader could do is to use language in the election letter that beats the code sections down the IRS¡¯s throat. An example is:

    "I hereby elect to use the Mark-to-Market method of accounting under Section 475(f)(1) of the Internal Revenue Code for my trade or business of trading securities. The first year for which the election is effective is the taxable year beginning January 1, (insert applicable year).

    This election applies only my securities trading business per Section 475(f)(1). It does not apply to any business I have now or in the future for trading commodities and Section 1256 contracts per Section 475(f)(2)."

    The second protective step a trader can take is to have the 1256 contracts trading done in a separate account from the account where the securities (stocks, options) trading occurs. The separate accounts simply reinforce the proposition that there are two separate businesses involved, and it was the taxpayer¡¯s intent to elect MTM for one business (securities) and not for the other business (commodities/1256 contracts).