AAPL Options Strategy

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    Posted: 18 August 2012 11:29 PM #721

    JDSoCal - 19 August 2012 12:58 AM
    jkao - 17 August 2012 03:40 PM
    Red Shirted Ensign - 17 August 2012 02:56 AM

    Doing some tax planning looking forward to year end.

    AAPL been very, very good to me…in 2012.

    Question:  assume I have a BCS expiring January 2013.  Can I buy back the short leg on December 29 and take the loss in 2012 then sell the long leg on Januay 2 and defer that gain until 2013? 

    If I could do this, assuming I have enough margin buying power to carry me over a few days, it could help offset some earlier realized gains….

    Maybe this belongs in Death and Taxes…... :-?

    I haven’t done it before, but that’s my plan also. I don’t see why not. Indeed, if you hold it long enough, the long leg could be long term gains, while the short leg is always short term losses.

    I’d strongly recommend contacting a tax pro before trying any of this.

    Tax pro got back to me. The long and short legs of the spread are separate positions.  They can be exercised independently. I have periodically unhedged spreads before…just not over year end.  Her main advice centered on ensuring settlement in 2012 for the short leg and ensure my margin agreement will cover the three day window..

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    Posted: 19 August 2012 03:23 AM #722

    Red Shirted Ensign - 19 August 2012 02:29 AM
    JDSoCal - 19 August 2012 12:58 AM
    jkao - 17 August 2012 03:40 PM
    Red Shirted Ensign - 17 August 2012 02:56 AM

    Doing some tax planning looking forward to year end.

    AAPL been very, very good to me…in 2012.

    Question:  assume I have a BCS expiring January 2013.  Can I buy back the short leg on December 29 and take the loss in 2012 then sell the long leg on Januay 2 and defer that gain until 2013? 

    If I could do this, assuming I have enough margin buying power to carry me over a few days, it could help offset some earlier realized gains….

    Maybe this belongs in Death and Taxes…... :-?

    I haven’t done it before, but that’s my plan also. I don’t see why not. Indeed, if you hold it long enough, the long leg could be long term gains, while the short leg is always short term losses.

    I’d strongly recommend contacting a tax pro before trying any of this.

    Tax pro got back to me. The long and short legs of the spread are separate positions.  They can be exercised independently. I have periodically unhedged spreads before…just not over year end.  Her main advice centered on ensuring settlement in 2012 for the short leg and ensure my margin agreement will cover the three day window..

    Yeah, my understanding is you can’t claim the losses in one year, and the gains in another. See:

    http://fairmark.com/forum/read.php?3,21028

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    Posted: 19 August 2012 01:40 PM #723

    Three day settlement is for actual stock transactions.  Option settlement is one day.

         
  • Posted: 20 August 2012 12:55 PM #724

    JDSoCal - 19 August 2012 06:23 AM
    Red Shirted Ensign - 19 August 2012 02:29 AM
    JDSoCal - 19 August 2012 12:58 AM
    jkao - 17 August 2012 03:40 PM
    Red Shirted Ensign - 17 August 2012 02:56 AM

    Doing some tax planning looking forward to year end.

    AAPL been very, very good to me…in 2012.

    Question:  assume I have a BCS expiring January 2013.  Can I buy back the short leg on December 29 and take the loss in 2012 then sell the long leg on Januay 2 and defer that gain until 2013? 

    If I could do this, assuming I have enough margin buying power to carry me over a few days, it could help offset some earlier realized gains….

    Maybe this belongs in Death and Taxes…... :-?

    I haven’t done it before, but that’s my plan also. I don’t see why not. Indeed, if you hold it long enough, the long leg could be long term gains, while the short leg is always short term losses.

    I’d strongly recommend contacting a tax pro before trying any of this.

    Tax pro got back to me. The long and short legs of the spread are separate positions.  They can be exercised independently. I have periodically unhedged spreads before…just not over year end.  Her main advice centered on ensuring settlement in 2012 for the short leg and ensure my margin agreement will cover the three day window..

    Yeah, my understanding is you can’t claim the losses in one year, and the gains in another. See:

    http://fairmark.com/forum/read.php?3,21028

    So… RSE’s tax pro and fairmark disagree?

    I had a look at IRS 550 just now, and it says:

    Exceptions.  The loss deferral rules do not apply to:
    Positions established after October 21, 2004, comprising an identified straddle,

    Certain straddles consisting of qualified covered call options and the stock to be purchased under the options,

    Hedging transactions , described earlier under Section 1256 Contracts Marked to Market, and

    Straddles consisting entirely of section 1256 contracts, as described earlier under Section 1256 Contracts Marked to Market (but see Identified straddle , next).

         
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    Posted: 20 August 2012 05:15 PM #725

    How do you read this as regards my original question?

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  • Posted: 20 August 2012 05:52 PM #726

    Red Shirted Ensign - 20 August 2012 08:15 PM

    How do you read this as regards my original question?

    *confusion ensues*

         
  • Posted: 20 August 2012 06:00 PM #727

    Funny how this options stuff goes.  Doing well overall, but sometimes as Maxwell Smart used to say “missed it by that much”. 

    Back in the parabolic times (April) I set up an August 650/660 BPS.  Things went South just afterwards.  So we close at just under 650 on Friday, and take out 660 in the first few hours today.  So a spread that was several months old missed by just a few trading hours.

    Not a rant, as other positions are doing just fine.  Hopefully my October 675/685 that I entered into around the same time, does not suffer the same fate.

    [ Edited: 20 August 2012 06:03 PM by Lstream ]      
  • Posted: 20 August 2012 06:14 PM #728

    Red Shirted Ensign - 20 August 2012 08:15 PM

    How do you read this as regards my original question?

    On further reading, I don’t think it applies. Nvmd!

    Did you tax advisor give an explanation for why it should be okay to account for the legs separately?

    (One possible reading I see is that *all* my options in AAPL are considered to be one enormous straddle: “Two or more positions will be presumed to be offsetting if: The positions are established in the same personal property (or in a contract for this property), and the value of one or more positions varies inversely with the value of one or more of the other positions…” Since my gains are greater than my losses, I can continue to apply my losses immediately.)

         
  • Posted: 21 August 2012 03:30 AM #729

    I’m new to options. Bought two $400 Jan 2014 calls around $80 back in October 2011.  They are trading for $270.  Do options work like stock re: long and short term capital gains. I’d like to sell 1 and lock in some profits but will wait until the 1 year mark if it matters.

    Thanks

         
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    Posted: 21 August 2012 03:56 AM #730

    Yes.**

    **Talk to your accountant, don’t blame us, we’re not accountants. wink

    It’s not 100% clear-cut because of all the options strategies out there, but with regular LEAP calls it’s one year (plus a day to be safe) holding period IIRC.

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  • Posted: 21 August 2012 04:25 AM #731

    Mav - 21 August 2012 06:56 AM

    Yes.**

    **Talk to your accountant, don’t blame us, we’re not accountants. wink

    It’s not 100% clear-cut because of all the options strategies out there, but with regular LEAP calls it’s one year (plus a day to be safe) holding period IIRC.

    perfect. thanks.

    note to self, the day you fell you “make” it in life is the day someone recommends you get an accountant. definitely a first.

         
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    Posted: 21 August 2012 04:30 AM #732

    Huh?  I just don’t wanna be sued by someone thinking I was a due diligence substitute.  LOL  I’m an embodiment of anti-due diligence! :D

    Hey, some of us AFBers needing to talk to accountants?  Get some tax advice?  No bad thing. smile

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    The Summer of AAPL is here.  Enjoy it (responsibly) while it lasts.
    AFB Night Owl Team™
    Thanks, Steve.

         
  • Posted: 21 August 2012 04:40 AM #733

    whoops. *feel, not fell. late one.

    time to start saving up for some 2015 leaps and some accountant fees. smile

         
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    Posted: 22 August 2012 06:54 PM #734

    Noob options question… all I have traded so far is Buy to Open and Sell to Close calls. I’m working on wrapping my head around Bull Call Spreads, but I’m not sure if I’m understanding the ramifications completely. My question is regarding the writing of the short leg.

    Do all sell transactions like this have to be covered? I could easily see trades where I’m writing 100s of contracts but I certainly don’t have 10s of thousands of shares to cover the options sales. How is this a viable trading strategy if you have to own so much underlying stock to use it? Writing naked call options appears to be a highly risky proposition and isn’t even allowed for beginning traders so are BCSs only for highly experienced traders? Seems everyone has been saying how it’s safer to use BCSs than straight calls.

    What am I missing?

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    Posted: 22 August 2012 07:16 PM #735

    cambrose - 22 August 2012 09:54 PM

    Noob options question… all I have traded so far is Buy to Open and Sell to Close calls. I’m working on wrapping my head around Bull Call Spreads, but I’m not sure if I’m understanding the ramifications completely. My question is regarding the writing of the short leg.

    Do all sell transactions like this have to be covered? I could easily see trades where I’m writing 100s of contracts but I certainly don’t have 10s of thousands of shares to cover the options sales. How is this a viable trading strategy if you have to own so much underlying stock to use it? Writing naked call options appears to be a highly risky proposition and isn’t even allowed for beginning traders so are BCSs only for highly experienced traders? Seems everyone has been saying how it’s safer to use BCSs than straight calls.

    What am I missing?

    With BCSs, you are writing options against your long options. For instance, if you open a 650/675 BCS (BTO 650, STO 675), and someone exercises the 675 call, you are covered by your 650 call, which you could exercise and you’d obtain the full $25 value for your spread.