Long box strategy to optimize (differ) taxes

Hello,

anyone is using a long box strategy to optimize taxes (by differing in time)? I would like to understand better how it would work.
I have a intermediate knowledge on options.

Thanks

 

How many digits has your AUM ?

 

What is AUM?

Let's say that for example I have 30 k$ of capital gain at 30th dec 2023. How could a trader create a "cost" of 30 k$ at 31st Dec with a long box (using broker IB) to offset the profit, which can be then "reversed" on 1st Jan 2024 creating a unrlz profit of 30 k$?

 

"Assets Under Management", ie. the size of your account.

Is this in the US? I think the IRS has closed all such loopholes...

 

I take back what I said.

You can create a box and sell the losing leg against your profit and then close the winning leg. But I think if you got caught you would get in trouble as the box is a non economic transaction.

 

I think this would be way too risky in the same instrument. IRS specifically calls out substantially identical stock or securities. You could use indices that aren't subject to wash sale rules like SPX but since it's MTM I don't think it would work out as you desire.

I understand what you are trying to do so if I was doing this I'd select 2 products that correlate but don't violate the rules. I'd probably long SPY and short QQQ using spreads. You could even just use ETFs so maybe long SSO (2x bull) and long QID (2x bear).

A challenge you have if you have not already put on this trade is the wash rules. Wash rule includes purchases made 30 days before and 30 days after the loss. So if you have not already put this trade on I don't think you could make this work unless you choose a product that doesn't have wash sale rules. Maybe this could be a long/short trade in the future where you would give yourself some more tax loss harvesting flexibility.

I'm not a CPA so don't take what I say as correct. If I were trying to do what you are I'd probably put this trade on in November and then if I needed the loss I would take the losing side off end of Dec and take the winning side off in Jan.

A downside to using major index is I would have to avoid buying the losing ticker (or anything substantially identical) for 30 days since loss. You could replicate this so many other ways like maybe long HD, short LOW or long XOM, short CVX.

I'm interested to hear if others might look at this.

 

Trust me; don't do it.

 

I agree. I would advise to not do it as well.

 

Hi guys, I am not based in US. From a legal point of view i understood there is no risk here. But let's take as theoretical exercise, since I don't have experience with long box strategy.

At 30th Dec EOB I have a profit in my ptf of 5k$.
At 31st Dec I open a long box on underlying U in the following way:
Long X Call U 100
Short X Put U 100
Short X Call U 120
Long X Put U 120
At 31st Dec U is priced 100.

Questions:
1) How I should size the long box in order to create a 5k$ loss on 31st Dec and a +5k$ profit on 1st Jan?
2) How would it work operatively? Shall I create the structure on 31st Dec, then close a subset of legs on 31st before closing, then close definitively the structure on 1st Jan?
3) How should I choose U?
4) How should I choose strikes?

Thank you very much for your inputs.

 

Risk-free box, if it's European and most transactional economies, have created similar tax prohibitions to the US mixed straddle rule. You should get a firm opinion from a tax advisor where you file. I'd get a tax opinion before I structure the trade.