[quote author=“mtdoc”][quote author=“capablanca”]My personal definition of “dividend paying” includes stocks of companies who repurchase their own shares on the open market.  I believe this is even better than dividends for those investors in taxable accounts.  With that definition in mind….....

I thought if you hold a stock more than 60 days then dividends are taxed at the long term capital gains rate.  Is this correct?

I thought U.S. long term capital gains (15% tax rate) are for investments held longer than 1 year?  Am I mistaken?

[quote author=“incorrigible”][quote author=“mtdoc”][quote author=“capablanca”]My personal definition of “dividend paying” includes stocks of companies who repurchase their own shares on the open market.  I believe this is even better than dividends for those investors in taxable accounts.  With that definition in mind….....

I thought if you hold a stock more than 60 days then dividends are taxed at the long term capital gains rate.  Is this correct?

I thought U.S. long term capital gains (15% tax rate) are for investments held longer than 1 year?  Am I mistaken?

OOPs - what I meant to say is that if you hold the stock for 60 days before ex-dividend then - if you held the stock for more than 1yr - you get the long term capital gains rate on the dividend.

I think that’s right - but maybe some one who knows more can correct me.

EDIT: - I just found this on the IRS web site - LINK

ec. 302 Dividends of individuals taxed at capital gain rates
Under the Act, dividends received by an individual shareholder from domestic and qualified foreign corporations generally are taxed at the same rates that apply to capital gains. This treatment applies for purposes of both the regular tax and the alternative minimum tax. Thus, under the provision, dividends are taxed at rates of 5 (zero, in 2008) and 15 percent.  The provision applies to dividends received in taxable years beginning after 2002 and before 2009.

To qualify for the capital gains rates, the shareholder must own the stock for more than 60 days during the 120-day period beginning 60 days before the ex-dividend date.  Also, the capital gain rates are not available for dividends to the extent that the taxpayer is obligated to make related payments with respect to positions in substantially similar or related property.  Other anti-abuse rules apply.

[quote author=“incorrigible”]
I thought U.S. long term capital gains (15% tax rate) are for investments held longer than 1 year?  Am I mistaken?

Well, yes.  And, no.

Diviidends are taxed at 15% until 2009 when we enter a period of “Rules to be announced”.  However it is not that simple.  We have the lovely Alternative Minimum Tax and other niceties which can get triggered by income levels or types of income.

But even at 15%, dividends are taxed when paid.  You get no choice.  Stock buybacks are not taxed.  And the resultant capital gains are taxed only upon sale, so you get to choose the timing.  Much nicer for thinking investors.

[quote author=“capablanca”]…Diviidends are taxed at 15% until 2009 when we enter a period of “Rules to be announced”.  However it is not that simple.  We have the lovely Alternative Minimum Tax and other niceties which can get triggered by income levels or types of income.…

I believe the 15% rate has been extended thru 1010 (see wikipedia).  I also believe the “lovely” AMT gets triggered by various types of income including Capital Gains but that the 15% rate still pertains to those capital gains.  I’m making significant plans based on these understandings.  If anyone knows otherwise, please say so.

As far as diversification is concerned, I’ve been thinking about that a lot.  Over half my portfolio is AAPL.  I’m convinced that if capital perservation is the goal it’s hard to argue against diversification.  If capital appreciation is the goal (as it is with me and probably most of us) it’s really hard to diversify out of AAPL since we have such a good understanding of its undervalue.

I’m going to hang on for the ride until at least just before MacWorld.  Meanwhile I’m selling various options (e.g. covered calls and naked puts) as a way of managing risk.

How often are we witness to, and can particiate in, the incredible technological shift that Apple is creating?

Good luck to us all.

just me.

[quote author=“Intrepid”][quote author=“capablanca”]…Diviidends are taxed at 15% until 2009 when we enter a period of “Rules to be announced”.  However it is not that simple.  We have the lovely Alternative Minimum Tax and other niceties which can get triggered by income levels or types of income.…

I believe the 15% rate has been extended thru 1010 (see wikipedia).  I also believe the “lovely” AMT gets triggered by various types of income including Capital Gains but that the 15% rate still pertains to those capital gains.  I’m making significant plans based on these understandings.  If anyone knows otherwise, please say so.

I’d check with a tax advisor on these points. The capital gains rate may remain the same, but the income from capital gains might trigger AMT issues on all other taxable income. I’m not a tax expert, so check on these facts.

[quote author=“Intrepid”] ... Meanwhile I’m selling various options (e.g. covered calls and naked puts) as a way of managing risk ...

How?  Shorting naked puts?  Would like to hear more .

[quote author=“Mace”][quote author=“Intrepid”] ... Meanwhile I’m selling various options (e.g. covered calls and naked puts) as a way of managing risk ...

How?  Shorting naked puts?  Would like to hear more .

I’m hanging on to AAPL stock for long term capital gains.  I sell qualified covered calls (sometimes leaps) to hedge that bet.  I sell naked puts (near or deep in the money) to periodically increase my risk (and hence return).  Recently (on that bizarre spike down) I sold slightly in the money naked puts expiring in January (I want maximum exposure leading up to MacWorld).  Thanks to Tommo for giving me the courage to do that.

This strategy means that as AAPL goes up risk (and potential profits) diminish … almost like automatically taking money off the table.

I went through a lot of gain and pain (think dot com bubble) to get to this methodology.

But I’m still here.  My handle reminds me that fear is the enemy.  My tag reminds me that greed is no friend.

me. 

Intrepid

Thanks.  I thought you mean shorting naked puts as a form of risk management.  Actually is to enhance return - I try out a few times since Aug 16 - prior to that, I sell credit vertical spread (puts) - safer.  Since is an experiment, I closed them (short puts) after a couple of days, not more than a month for sure - very risky ... For credit spreads, usually held to expiry.  I don’t sell puts so far away, and so deep ITM, so far, slightly ITM and near month.  Btw, you’re not selling naked puts - they’re in fact covered by stocks held in the account.

From your description, you’re writing strangle (short call, short put).  The usual is both are OTM, with strike price of call higher than strike price of put.  yours seem to be both ITM , may be strike price of put higher than strike price of call.  Unless ofc you mean short puts and buy back short calls - that is what I’ve attempted to do when AAPL declines briefly to $153 - I’d placed the order the night before , but couldn’t get any filled even though I compute based on AAPL=$156 - clearly my computation is wrong due to lack of deep understanding of GREEKS.  Spent too much studying EW but not enough time in understanding GREEKS.  I’m frustrated but not a lot since it is an experiment.

One more thing, long stock + short call + short put is synthetically equivalent to short naked put .  You’ve double your risk exposure.  Curious why you don’t buy calls?  Long call has unlimited gain, limited loss.  Short puts has limited gain, unlimited loss.  What would you do if your puts are assigned?  I place trailing stops for short puts and don’t rely on “automatic taking off money as in “This strategy means that as AAPL goes up risk (and potential profits) diminish … almost like automatically taking money off the table.”  Hope you can tell me more on how you deal all the possible scenarios after “shorting puts” .

One last thing, I’m already too exposed to AAPL (way more than mtdoc).  I probably held the record for ‘all in’ for 10 years and being an AAPL-only stock portfolio.  I need protection (capital preservation ) not aggressive hunt for enhanced return (capital appreciation ).  That’s the reason I follow this thread.

[quote author=“Mace”]…prior to that, I sell credit vertical spread (puts) - safer.

… I used to sell credit vertical spreads (puts and calls) … but recently I have opted for more leverage.  I might go back to those spreads after a while.  Meanwhile I put in a “mental stop”.  That is I write down the lowest price of the underlying that I am willing to tolerate. [quote author=“Mace”]… Curious why you don’t buy calls?

I like to reap the volatility premium. [quote author=“Mace”]What would you do if your puts are assigned? 

  I monitor the difference between the strike and the underlying … when that difference gets too close to the price of the option I liquidate. If they are assigned before that I sell the assigned stock and thank the assignor for the gift. [quote author=“Mace”]One last thing, I’m already too exposed to AAPL (way more than mtdoc).

I am also too exposed to AAPL … over half my portfolio.  During the dot com bubble I ended up with most of my portfolio in SUNW, which then quickly fell from ~$65.00 to ~$2.50 … and essentially wiped me out.  I vowed never again … but here we are in AAPL, and who knows what will be … I know that I don’t know.  Capital Preservation (used to be the name of a company that sold gold) requires diversification.  These days I have some real estate.

Also, note that mathematical models have limited value.  The stock market does not follow a Normal Distribution, as Long Term Capital Management found out.

me

Intrepid -

Nice to have another active AAPL options trader here! I’ve learned a lot on AFB by seeing how other AAPL options traders - Mace, Snipus and others have been successfull using very different aproaches than myself. 

[quote author=“Intrepid”] I like to reap the volatility premium.? 

Here, here! Of the many factors affecting an options price -  Price of underlying, volatility, time to expiry -  only one is completely predictable - that is time - it only goes forward ! 

So I like being on the right side of time decay.

Volatility changes are also more predictable than price changes IMHO.

Therefore - like you I like to be a net seller of option premium whenever possible.  I’m, still learning how to best do this successfully,  consistently and with limited risk.

Also, note that mathematical models have limited value.  The stock market does not follow a Normal Distribution, as Long Term Capital Management found out.

  This is a very good point.  You can’t ignore those “fat tails” on the distribution. - Hence the volatility skew and occasional “Black Swan” event that can burn premiium sellers who aren’t carefull.  As I learned in May, Black Swans can also be to the upside!

The sell naked puts - get assigned - then sell stock and repeat or sell covered calls (synthetically equivalent) approach is tried and true - and something I mentioned early in this thread.  It can be capital intensive though!

Capital Preservation (used to be the name of a company that sold gold) requires diversification.  These days I have some real estate.

Up until last January when I sold a rental house - I also counted on that for diversifcation.  I have to constantly fight the urge tie up more of my trading capital in AAPL.

[quote author=“mtdoc”]… - like you I like to be a net seller of option premium whenever possible.  I’m, still learning how to best do this successfully,  consistently and with limited risk.

Ditto (“still learning”).  Right now I’m looking at the option premiums before and after earnings reports.  In particular I’m selling options (maybe both puts and calls) before the reports (GOOG and AAPL) and [perhaps] liquidating after.  Anyone have a feel for that strategy?
[quote author=“mtdoc”] The sell naked puts - get assigned - then stock ad repeat or sell covered calls (synthetically equivalent) approach is tried and true - and something I mentioned early in this thread.  It can be capital intensive though!

One of the benefits of “capital intensive” strategies is that they lower the risk of ruin.
[quote author=“mtdoc”] Up until last January when I sold a rental house - I also counted on that for diversifcation.  I have to constantly fight the urge tie up more of my trading capital in AAPL.

Ditto (“constantly fight the urge”).  It helps that I’ve been through the ringer twice.  First with gold circa 1980.  Made a bundle in futures trading then lost the farm.  Next with SUNW during the dot com bubble, made a bundle in stock and options, then lost most of the farm.  I had (thanks universe) taken some out to buy real estate.  And now, here’s AAPL.  I’m a believer, but ruin is unacceptable.  So I’ll keep the tag to remind me to be cautiously courageous … “It’s better to miss the boat …” .

So glad to be part of this forum.  And glad you are part of it.

Just me

[quote author=“Intrepid”]Ditto (“still learning”).  Right now I’m looking at the option premiums before and after earnings reports.  In particular I’m selling options (maybe both puts and calls) before the reports (GOOG and AAPL) and [perhaps] liquidating after.  Anyone have a feel for that strategy?

I’m still deciding on my AAPL strategy pre-earnings but will definitely be short volatility going into earnings as I expect a 10-20 bp drop in IV from where it is today.

I’ve been looking at butterflies in GOOG as a possible short vol earnings play. 

Ditto (“constantly fight the urge”).  It helps that I’ve been through the ringer twice.  First with gold circa 1980.  Made a bundle in futures trading then lost the farm.  Next with SUNW during the dot com bubble, made a bundle in stock and options, then lost most of the farm.  I had (thanks universe) taken some out to buy real estate.  And now, here’s AAPL.  I’m a believer, but ruin is unacceptable.  So I’ll keep the tag to remind me to be cautiously courageous … “It’s better to miss the boat …” .

So glad to be part of this forum.  And glad you are part of it.

Just me

Good to have more here who know firsthand what risk really means !!