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Ever since TC came under my eyes in the October-November timeframe, it's been a nicely performing candidate in all forms of investing/trading.
Part 1: I picked the actual underlying in 500s and 600s, all under 6.5 and today it's sitting at 9.5ish, and I have been holding.
Part 2: I started picking short term lots based on the intermediary movement and other patterns/rumours, both buying and short selling, as it was repetitively cyclical between 6 and 8
Part 3: Puts (less puts for it's been on a nice primary uptrend, barring short term downtrends) and calls and while I have not picked up 100s like BAC, I'd minimized the contracts to 5's and 10's and the success has not been that great in terms of returns like 1 and 2 coz investment was low, but there's immense potential. And this is where I'll be concentrating on, going forward.
It's prompting me to think that this is the only way to beat the street, which is in a funk, and will continue to be for 3 or 4 or more years, with three-pronged diversification on one and the same underlying. No problem which way it moves, somewhere in part 1, 2 or 3 it was green.
Why? Lesson learned from AA. Picked up 1200 at 12.12 on a whim, in the name of blue chip investing and building margin for margin trading (well, it did achieve that purpose), and quite the slacker it has been for months now. Lynas has been a winner and it's made me forget everything else in the portfolio, I don't have any other stock in such huge numbers.
My present mission has been to accumulate money to perform the same move on AA and wimp myself out. I have not funneled new money into the equity account for more than 2 months now. And I don't have much hopes for AA. For how aluminum looks, it's looking like stagnation.
Often times, investors perform Part 1 and that's it. And there's little control after that. If things are good, profit, otherwise, heartbreak. Like I'm stuck in Alcoa
Does this strategy ever put you in the position of being short-against-the-box? And if so, aren't there adverse tax consequences? Just curious. . .
When I attempted to short this against one broker, they said "shares not available" to short.
So I used another account to short sell it. I did this twice. I honestly didn't know of this concept, wow. Tax guy has been preparing my returns. Is this illegal??? If I end up owing money, then it's okay, but do you have any idea if I'm in trouble?? Maybe that's why they didn't allow to short on the same broker.
I do options with options house, that's a different account.
I did some reading. It appears outlawed. Thank you, ML, you learn something new every day.
Short Sell Against the Box Definition | Investopedia
Let's say that you have a big gain on some shares of ABC. You think that ABC has reached its peak and you want to sell. However, the tax on the capital gain may leave you under-withheld for the year and subject to penalties. Perhaps the next year you expect to make a lot less money, putting you in a lower bracket and causing you to want to take the gain at that time. However, the Taxpayer Relief Act of 1997 (TRA97) no longer allows short selling against the box as a valid tax deferral practice. Under TRA97, capital gains or losses incurred from short selling against the box are not deferred. The tax implication is that any related capital gains taxes will be owed in the current year.
Then part II has to be just buying short term lots and not short selling, to avoid this.
When I attempted to short this against one broker, they said "shares not available" to short.
So I used another account to short sell it. I did this twice. I honestly didn't know of this concept, wow. Tax guy has been preparing my returns. Is this illegal??? If I end up owing money, then it's okay, but do you have any idea if I'm in trouble?? Maybe that's why they didn't allow to short on the same broker.
I do options with options house, that's a different account.
First, no, what you're doing is not illegal, as long as you're following the proper tax laws.
Short-against-the-box (SATB) is a strategy that was once used to lock in a big gain without triggering a taxable event. So there are some stipulations, but being short-against-the-box occurs after a stock has risen and you initiate a short position to lock in gains. Investors would then either hold the position until it became a long term gain (thus reducing their tax liability), or just never unwound the position and borrowed against it.
Eventually the IRS closed this loophole by setting up regulations such that a taxable event is triggered when a SATB is initiated, except in certain circumstances. I'm not entirely sure of all the mechanics, but the reason I raised the question is that the potential tax consequences could be affecting your profitability. For instance, the difference in your tax liability between ST and LT gains for a given position may be greater than the benefit of hedging that position. And initiating a SATB transaction may turn some of your would-be LT gains into ST gains.
Honestly, this may all be a moot point, because I'm not sure if what you're doing would put you in any SATB positions, but it's probably at least worth looking into. You may consider checking with your accountant because it's a complex issue.
First, no, what you're doing is not illegal, as long as you're following the proper tax laws.
Short-against-the-box (SATB) is a strategy that was once used to lock in a big gain without triggering a taxable event. So there are some stipulations, but being short-against-the-box occurs after a stock has risen and you initiate a short position to lock in gains. Investors would then either hold the position until it became a long term gain (thus reducing their tax liability), or just never unwound the position and borrowed against it.
Eventually the IRS closed this loophole by setting up regulations such that a taxable event is triggered when a SATB is initiated, except in certain circumstances. I'm not entirely sure of all the mechanics, but the reason I raised the question is that the potential tax consequences could be affecting your profitability. For instance, the difference in your tax liability between ST and LT gains for a given position may be greater than the benefit of hedging that position. And initiating a SATB transaction may turn some of your would-be LT gains into ST gains.
Honestly, this may all be a moot point, because I'm not sure if what you're doing would put you in any SATB positions, but it's probably at least worth looking into. You may consider checking with your accountant because it's a complex issue.
Thank you, ML. I'm going to have to talk to the tax preparation person who's been helping me file.
I did reading and it seems the only worst case scenario would be that I will end up owing some money to the IRS.
Random thought -- it may be possible for you to eliminate the SATB concern by shorting a stock that is highly correlated with TC; however, that would obviously introduce other risks.
For example, if I had a big gain in SCHB, I could effectively hedge that gain by shorting SPY. I could then hold those position until I was able to realize my gain as a long term gain. There would be no SATB concerns.
For small companies with small market cap, it's going to be difficult to find another stock that is highly correlated, so I'm thinking that strategy wouldn't really work out.
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If I end up owing money, then it's okay, but do you have any idea if I'm in trouble?? Maybe that's why they didn't allow to short on the same broker.
