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Old 12-06-2017, 03:58 PM   #41
gone traveling
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Hmmm... the IRS regs on this, which is where I would normally prefer to go for reference, are inscrutable to me. And I can find secondary sources which either support my claim (in or at the money is constructive) or yours (only DEEP in the money is constructive). I'm guessing that this may be one of those areas where the law is murky, and has not been fully tested/defined in the courts?

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Old 12-06-2017, 04:56 PM   #42
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Join Date: Nov 2010
Location: Vermont & Sarasota, FL
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I agree that the regs are obscurely worded. I can see where a deep in-the-money option could be a substantive sale since at inception the option has a lot of interinsic vaue in addition to time value.... depending on how deep it is the likelihood of it expiring worthless is remote so one has substantively sold the position at the strike price.

However, an at-the-money put is all time value at inception so it makes no sense at all to deem it as a sale.... especially since if it is at-the-money it is just as likely to expire worthless as with intrinsic value.

Back to your question from post #39, there is a difference between protecting a gain from a possible reversal and all-but locking it in. An at-the-money protective put does the former. If you did a short sale of the position or a deep-in-the-money put that would be all-but locking in the price.

I'm just thankful that I don't have to deal with them.

If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
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Old 12-14-2017, 01:11 PM   #43
Recycles dryer sheets
Join Date: Feb 2013
Posts: 210
Well, I've just sold off about 18% of equity shares in my portfolio with a $5,500 tax bill. So my new AA is: 82% equities 18%: cash

I don't know how to emotionally tag it, but I feel I was driven by a combo of 1) possible market downturn and 2) unknown of whether or not I will buy a home in the next couple years. The two are intertwined of course, BUT I'd say there is only a 50% chance of me buying a home, so I think part of my decision was driven by a feeling that the market will nosedive in the next year or two.

If the market returns 7% next year, I will have lost out on about $5k of appreciation, which would overall amount to about 1.2% less in returns on my portfolio for the year. I was willing to take this risk to sleep better at night. Although h I do feel very comfortable with my job situation, I don't know how I'd feel if my portfolio was reduced by 30-40% overnight due to a market correction.

So, I viewed this as a "now or later" type situation (with regard to paying taxes), with the "later" more likely if the market were to tank and I were unable to sell for a while. Of course, if tax law changes in investors' favor then I wouldn't have had to pay such a big tax bill, but I can't predict what will happen in that regard.

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