AAPL Options Strategy

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    Posted: 21 March 2012 03:48 PM #16

    dc930 - 21 March 2012 05:36 PM

    A question for lovemyipad or other options savants…

    I bought some Jan ‘13 400 LEAPS last summer that are now up about 500% (!!!)

    ipad, I remember in the past you have talked about converting in the money LEAPS to spreads to raise cash in the interim, so I can start buying 2014 LEAPs. Is there a particular strategy I should use when deciding how to do this? Do I match them up with ITM or OTM 2013 calls? Do I sell nearer-term calls to create a calendar spread?

    I’m just looking for a way to use this huge run to my advantage, build up some cash and place more long term trades without using margin. This is all in a taxable account so I don’t want to sell my existing LEAPS yet due to their current short term tax status.

    Can someone point me in the right direction? Much appreciated!

    Credit bull call spread users in Aisle 2…

    I’ve made a credit spread on MUCH less favorable terms than you get to.  500% returns = phenomenal!  iPad can discuss many non-advice options.  I’ve only done this once myself, so I’m not the guy to talk to re: amount of capital recovery or the numbers, or the capping of possible further gain..  But make sure you have Level 3 Options trading and an Excel/Numbers spreadsheet handy, or at least some paper.

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    Posted: 21 March 2012 08:32 PM #17

    nkmho - 21 March 2012 06:26 PM
    rickag - 21 March 2012 05:37 PM

    Thank you for the heads up,  which service did you change to if you’re willing to let me know?

    I switched to OptionsHouse, where I already had most of my funds, but TradeMonster is a good choice for an options beginner. TM’s rates are a bit higher, but I think you’ll realize soon enough that the slight difference in contract costs don’t matter too much in the end.

    Thank you for the response, I went ahead and opened an paper account @ TradeMonster to learn their tools and review some of the basic tutorials they have.  A lot to digest.

    I also figured out I don’t have to sell my shares @ my current brokerage, but just transfer the shares directly to TradeMonster or whatever service I decide to use.  Not sure if this can be worked to my advantage or not?

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    Posted: 21 March 2012 09:39 PM #18

    Another question to spreads aficionados (I know dc930 just asked, and I don’t want to be greedy - but suspect it might actually be possible to answer both questions in the same response):

    When you list gains on bull call spreads for tax purposes, do you separately declare the long leg (capital gain) and the short leg (capital loss), resulting in net gain? Or you calculate the cost of the spread as a whole at time of purchase and at time of sale or expiry? In other words, do you have 2 lines per spread, or 1?

    Also, I vaguely remember someone here mentioning tax implications of DITM spreads, or perhaps spreads with overlapping strikes - the implication being that not all short legs are treated as capital losses and tax-deductible (from capital gains)? Or am I just dreaming this up?

    Thanks in advance! Whoever answers, hope it will be useful for others this tax season.

         
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    Posted: 21 March 2012 09:51 PM #19

    dc930 - 21 March 2012 05:36 PM

    A question for lovemyipad or other options savants…

    I bought some Jan ‘13 400 LEAPS last summer that are now up about 500% (!!!)

    ipad, I remember in the past you have talked about converting in the money LEAPS to spreads to raise cash in the interim, so I can start buying 2014 LEAPs. Is there a particular strategy I should use when deciding how to do this? Do I match them up with ITM or OTM 2013 calls? Do I sell nearer-term calls to create a calendar spread?

    I’m just looking for a way to use this huge run to my advantage, build up some cash and place more long term trades without using margin. This is all in a taxable account so I don’t want to sell my existing LEAPS yet due to their current short term tax status.

    Can someone point me in the right direction? Much appreciated!

    Quick note here as I am brain fried tonight.  I would sell a higher strike JAN’13, like 500, 550, or 600 to pull out some equity you can then reallocate to JAN’14.  I don’t know anything about tax consequences—our non-retirement accounts are buy and hold, and I trade in our IRAs so I don’t have to deal with taxes—so do check with your tax person on that stuff.

    Way to go on the fabulous return!!!!! smile

         
  • Posted: 21 March 2012 10:23 PM #20

    Roman - 22 March 2012 12:39 AM

    Another question to spreads aficionados (I know dc930 just asked, and I don’t want to be greedy - but suspect it might actually be possible to answer both questions in the same response):

    When you list gains on bull call spreads for tax purposes, do you separately declare the long leg (capital gain) and the short leg (capital loss), resulting in net gain? Or you calculate the cost of the spread as a whole at time of purchase and at time of sale or expiry? In other words, do you have 2 lines per spread, or 1?

    Also, I vaguely remember someone here mentioning tax implications of DITM spreads, or perhaps spreads with overlapping strikes - the implication being that not all short legs are treated as capital losses and tax-deductible (from capital gains)? Or am I just dreaming this up?

    Thanks in advance! Whoever answers, hope it will be useful for others this tax season.

    Roman,
    A search of the web for tax info on this and conferring with Fidelity leads me to conclude that each leg of the spread is treated separately for tax purposes, i.e. 2 lines per spread.  At least that is how my Fidelity Form 1099 will read.

    Alan

         
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    Posted: 21 March 2012 10:26 PM #21

    Roman - 22 March 2012 12:39 AM

    Another question to spreads aficionados (I know dc930 just asked, and I don’t want to be greedy - but suspect it might actually be possible to answer both questions in the same response):

    When you list gains on bull call spreads for tax purposes, do you separately declare the long leg (capital gain) and the short leg (capital loss), resulting in net gain? Or you calculate the cost of the spread as a whole at time of purchase and at time of sale or expiry? In other words, do you have 2 lines per spread, or 1?

    Also, I vaguely remember someone here mentioning tax implications of DITM spreads, or perhaps spreads with overlapping strikes - the implication being that not all short legs are treated as capital losses and tax-deductible (from capital gains)? Or am I just dreaming this up?

    Thanks in advance! Whoever answers, hope it will be useful for others this tax season.

    When I downloaded the .txf file from my broker to import into TurboTax, I opened it up, and it showed each leg separately with the corresponding options symbol.

         
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    Posted: 22 March 2012 12:24 AM #22

    Alan and nkmho,

    Thanks for your responses. They confirm my understanding - I already submitted taxes using the 2-line method, but only had a couple of spreads to report. (I entered them manually for the same reason). I’ll continue searching for any tax implications of short legs.

    One issue that those who leg-in should consider is that their long leg (call) might be a long-term capital gain, while their short leg (if it was sold later, to convert a bull call to spread) might be a short-term capital loss. As far as I understand it, short-term losses counter-balance short-term gains, and long-term losses counter-balance long-term gains. I think this warrants more research, but I don’t leg in (only buy spreads OR calls) so I haven’t done it.

         
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    Posted: 22 March 2012 02:48 AM #23

    Roman, that’s how I understand it as well - they are separate transactions/trades that will show up on separate lines for tax purposes.

    Now I’m considering selling ‘13 600’s against my 400’s to create a spread, but since the short leg will be short-term funds only, that allows me to buy them back with a clear conscious if AAPL correct within the next few months, while allowing the long leg to ride into the sunset.

    So many possibilities! I’m reluctant to open new long positions with AAPL at an all-time high, but you see how well that strategy has worked out the last 2 months… wink

    I also realize that I might be doing things backwards tax-wise… by not using more options in my IRA, leaving the common for taxable. Oh well. Certainly can’t complain how things have turned out.

         
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    Posted: 22 March 2012 04:52 PM #24

    I am trying an Iron condor today for the first time to play the 600 close on OE tomorrow.  I didn’t buy all at once- figured i’d play the up and down and set limits for the put spread and call spread.

    Ended up with the 590/595 put spread for 1.40 credit and the 610/605 call spread for 1.60 credit.

    Net is $3 credit, Max loss if it’s below 590 or above 610 tomorrow will be $5-$3 credit = $2.  I know it’s a tight window to hit, but I think it’s looking good on closing between 595 and 605 for the max gain. 

    Now that I got a feel for legging the condor (try getting the bear call spread when price is high and try getting bull put spread when price is low), I could see how getting the net loss possibility down to zero is doable.  If you bought the two legs at the exact high and exact low today, the spread would be a $3.75 credit, so I’m pretty happy with a $3 credit.  Buying it all at once looked like it would only net around $2.25.

    [ Edited: 22 March 2012 04:56 PM by terps530 ]      
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    Posted: 22 March 2012 06:12 PM #25

    Roman - 22 March 2012 03:24 AM

    ....
    One issue that those who leg-in should consider is that their long leg (call) might be a long-term capital gain, while their short leg (if it was sold later, to convert a bull call to spread) might be a short-term capital loss. As far as I understand it, short-term losses counter-balance short-term gains, and long-term losses counter-balance long-term gains. I think this warrants more research, but I don’t leg in (only buy spreads OR calls) so I haven’t done it.

    Short-term losses do offset long-term gains, so it doesn’t matter how long you “hold” the short leg.

    Technically, you aren’t holding the short leg anyway. When you short, you’re borrowing the option and selling it immediately. All you’re holding are the proceeds of the sale. When you close the short, you’re buying the option back and immediately returning what you borrowed. You’re holding period is just that brief moment before you return what you borrowed. That’s why, no matter how long your short was open, it’s always a short-term gain or loss.

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  • Posted: 22 March 2012 08:10 PM #26

    Bid-Ask experts:

    I know bid-ask is a science and there’s tons to it, but here’s a question:

    Say I’m looking at July 740/745s and the bid ask is .10 and .85 -

    What’s the lowest limit I could put in and expect to maybe get filled assuming the stock was sitting still? 

    I suppose I could just add it to my watch list and see how it behaves, but any insight would be appreciated. 

    This is more me trying to dissect various trades I’m considering, and obviously I can’t consider stuff if I don’t know where it might get filled.

         
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    Posted: 22 March 2012 09:51 PM #27

    StillLong - 22 March 2012 11:10 PM

    Bid-Ask experts:

    I know bid-ask is a science and there’s tons to it, but here’s a question:

    Say I’m looking at July 740/745s and the bid ask is .10 and .85 -

    What’s the lowest limit I could put in and expect to maybe get filled assuming the stock was sitting still? 

    I suppose I could just add it to my watch list and see how it behaves, but any insight would be appreciated. 

    This is more me trying to dissect various trades I’m considering, and obviously I can’t consider stuff if I don’t know where it might get filled.

    Lowest level…go to the midpoint (= mark) then scoot .10 closer to the bid if you’re selling or .10 closer to the ask if you’re buying.

         
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    Posted: 22 March 2012 09:54 PM #28

    terps, great job on legging into your iron condor!! smile

         
  • Posted: 22 March 2012 10:31 PM #29

    lovemyipad - 23 March 2012 12:51 AM
    StillLong - 22 March 2012 11:10 PM

    Bid-Ask experts:

    I know bid-ask is a science and there’s tons to it, but here’s a question:

    Say I’m looking at July 740/745s and the bid ask is .10 and .85 -

    What’s the lowest limit I could put in and expect to maybe get filled assuming the stock was sitting still? 

    I suppose I could just add it to my watch list and see how it behaves, but any insight would be appreciated. 

    This is more me trying to dissect various trades I’m considering, and obviously I can’t consider stuff if I don’t know where it might get filled.

    Lowest level…go to the midpoint (= mark) then scoot .10 closer to the bid if you’re selling or .10 closer to the ask if you’re buying.

    Thanks iPad.

         
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    Posted: 23 March 2012 05:14 PM #30

    lovemyipad - 23 March 2012 12:54 AM

    terps, great job on legging into your iron condor!! smile

    woo thanks- I nailed it.  It was fun to watch at the end, hoping it didn’t breach the 595, but that held and they all just expired worthless for the max gain smile 

    Wasn’t a homerun gain, but I’ll take a solid single any day.