When to sell ?

[Nords]

I'd also like to know how to ice skate backwards !

So would I, but it hurts too much and I think options are easier to learn...

 

[ERD50]

You are partially right . I would like to learn about options and Puts but this is not the stock to do it on IMO. Not that I'd use the knowledge a lot but I'd like to really understand it .

Curious why you think this is not the stock to do it on? It sounds like the perfect candidate, based on your description of its price movement and your goals. Unless of course, there are no options traded on this stock.

Buying a put really is a very simple thing. And it does not complicate taxes by very much - if the put is not exercised, it is just listed as a separate transaction at a loss; if it is exercised, the cost is subtracted from your gain.

It can also help when you want to hold a stock a bit longer to qualify for a long term gain, but you are afraid that it might drop during that time. Buy a put that expires at that future date, and you have put a floor on your gain, but not limited your upside (other than to reduce it by the cost of the put/insurance).

If you had said you had zero interest in options, I would not have posted the above, but since you expressed some interest, I thought this might help bring things into perspective. I think this is the perfect application, and a great time to learn, since that is your stated goal.

-ERD50

 

[kumquat]

I'd also like to know how to ice skate backwards !

It's actually quite easy, as long as you can do it forwards.

 

[chinaco]

IMO - cash out. What do you think the chances are that it will double its current value? Doubling would be 20x. What are the chances it will cut in half? Take your gain and be happy you were savvy enough to capture it.

 

[FinanceDude]

IMO - cash out. What do you think the chances are that it will double its current value? Doubling would be 20x. What are the chances it will cut in half? Take your gain and be happy you were savvy enough to capture it.

Sounds like a good strategy on Intel shares, from time to time.......

 

[TromboneAl]

I bet you wish you'd bought more.

 

[Moemg]

I bet you wish you'd bought more.

Actually no , It is a speculative stock so I buy those with money I can afford to lose . It's like going to Vegas without the free drinks .

 

[tinlizzy]

I am definitely going to take out the initial investment plus some . During the tech run up I was in an investment club we had bought Oracle very low and it got to be a huge percentage of our portfolio we finally voted to sell a lot of it and the rest is history . We all made a good chunk of money and got out before it dropped .

Oh! Would you mind telling the Oracle story - if there is one?

I'm in the same boat. I bought stocks last March and I feel the need to come up with an exit plan.

 

[audreyh1]

Actually no , It is a speculative stock so I buy those with money I can afford to lose . It's like going to Vegas without the free drinks .

If I considered it like Vegas and I had a 10 bagger - I'd be outta there so fast!!!!!

Audrey

 

[FIRE'd@51]

It can also help when you want to hold a stock a bit longer to qualify for a long term gain, but you are afraid that it might drop during that time. Buy a put that expires at that future date, and you have put a floor on your gain, but not limited your upside (other than to reduce it by the cost of the put/insurance).

Actually, this won't work, since it falls under the IRS straddle rules. Buying a put on a stock which you have held for less than a year will freeze the holding period and cause it to start over when the put expires or is sold. This applies to collars as well, since they utilize puts.

 

[ERD50]

Actually, this won't work, since it falls under the IRS straddle rules. Buying a put on a stock which you have held for less than a year will freeze the holding period and cause it to start over when the put expires or is sold. This applies to collars as well, since they utilize puts.

Thanks (sort of ).

I was unaware, and I don't think my tax programs ever triggered anything like this (though I only very rarely use defensive puts, and have probably never done it with the intention to extend the holding period).

There was also this:

Straddle rules

According to the IRS, a straddle is an "offsetting position with respect to personal property." When you enter into an offsetting position to limit the risk on another position—as you do with a hedge—the straddle rules usually come into play. Straddle rules are complex, but here are some key points to keep in mind:

You may have to wait to deduct any losses. If you have a capital gain in one position of a straddle and a capital loss in the other, you can't recognize the loss for income tax purposes until you dispose of both positions. For example, let's say you had a highly appreciated stock position and you purchased protective put options (which give you the right to sell the stock to someone else for a period of time at a predetermined price) to offset the risk. However, the stock continued to rise and your put options expired worthless. You must defer recognition of the loss on your put options until you sell and recognize the gain on the original, appreciated position.

Geez, so you think a stock might tank due to some upcoming news/event, but you don't want to sell in case the news isn't so bad, so you buy a protective put. Turns out the stock does not tank, life goes on, your put expires. 15 years later, you sell the stock, and you are supposed to have a record of this put transaction from 15 years previous to use to offset your gains? What if the IRS questioned it? I need my paper records from 15 years ago to prove I bought a put? That is just crazy in my book.

From a totally pragmatic viewpoint, I am against cap gains taxes - the record keeping is crazy, and the IRS doesn't know if someone cheats or does it wrong w/o an audit (and maybe not even then). But if we are going to have cap gains taxes, and although it would seem like more paperwork, I think it would be better if we were required to report our holdings and cost basis each and every year. That way, you would not need to dig back further than last years tax records to determine your gain/loss, and it seems like it would be easier to catch errors on an annual basis (there must be a transaction to match any change in cost basis). So in the case I just presented, the IRS could question the put transaction in the year it was recorded (within statutes of limitations). Or do statutes of limitations 'work' in my favor - and I can just claim I bought puts on my stocks 15 years ago - sorry IRS, you are out of time to prove that I didn't? heh-heh-heh - I doubt it.

sorry, rant over


-ERD50

 

[Nords]

Buying a put on a stock which you have held for less than a year will freeze the holding period and cause it to start over when the put expires or is sold. This applies to collars as well, since they utilize puts.

"Investors" worrying about taxes on 10-baggers are worrying about the wrong thing... buying a put is just a temporary substitute for making a freakin' decision.

"If you choose not to decide, you still have made a choice..."

 

[tryan]

It is too bad options have such bad rap. While I understand that a lot of people consider them (for good reason ) a form of gambling.

Plenty of horror stories out there ... a good friend bought into Optioneer (Options trading scheme). He lost 70k during the S&P meltdown two years ago. A trip to Vegas would have been alot more fun!

 

[clifp]

Actually, this won't work, since it falls under the IRS straddle rules. Buying a put on a stock which you have held for less than a year will freeze the holding period and cause it to start over when the put expires or is sold. This applies to collars as well, since they utilize puts.

Thanks for pointing this out. I hadn't looked at the IRS rule regarding straddles in a long time. It seems that using a put to hedge while waiting for a stock to become long-term is no longer viable (rather than just complicated as I stated )

Actually reading the straddle section IRS Publication 550 made my brain hurt.
While I guess it is good that IRS tightened up on some loopholes, the rules have gone from merely complicated to bloody incomprehensible.

In our mythical fantasy world for simplifying the tax code, I moving toward ERD's camp lets get rid of cap gains tax. It is so complicated and the record keeping gets toward the absurd.

 

[ERD50]

Plenty of horror stories out there ... a good friend bought into Optioneer (Options trading scheme). He lost 70k during the S&P meltdown two years ago.

Perfect example of options getting a 'bad rap'. I lost a lot more that $70K in the S&P meltdown to years ago. And it would have been *worse* if I didn't use options with that investment.

Options (calls and puts), can be bought or sold (go long or short). It isn't options that are risky, it is what you do with them.

I could just as well say that that investing in stocks is bad - a good friend shorted the tech market in the late 90's. Would that really make stock investing bad?

Buy a put and you pay to reduce your risk for the stock. Where is the the horror story there?

Sell a covered call and you trade some of the *potential* upside of that stock for some $ today. Where is the the horror story there?

"... buying a put is just a temporary substitute for making a freakin' decision.

"If you choose not to decide, you still have made a choice..."

Not the case at all many times.

If an announcement is coming up, I can't 'know' if I should sell or not. The market response may be positive (whew, news was not as bad as feared, and they threw in some unknown good news too!), or negative (arghhhh, news was worse than feared!), or pretty flat (ho-hum, news is about what was already factored in the stock price).

In that case, buying a put could be an active decision to wait out the announcement. One could certainly say that they think the price of the put is worth the chance that the news is OK, and the stock will rise more than the cost of the put. Obviously, the put sellers think otherwise, but that is what makes a market. Another decision would be to sell (take a tax hit), and then buy back (or not, but probably creating a wash sale if you do) after the announcement. They could both be active decisions.

In the OP case, I think not selling any might be the 'decision by failure to decide' mode.

In our mythical fantasy world for simplifying the tax code, I moving toward ERD's camp lets get rid of cap gains tax. It is so complicated and the record keeping gets toward the absurd.

I probably posted on this last year, but a friend of mine decided to take the effort to dot every 'i' and cross every 't' on the option trading he was doing (some straddles involved, sometimes just covered calls). Short story, after many hours, many transfers back and forth to the 'experts' at the IRS, he could not get a straight answer to even the *simplest* of his questions. He ended up 'winging it', but trying his best to make sure he was paying at least the correct amount.

The broker does not even report option trades to the IRS. Sumpin' tells me a lot of people are avoiding this tax, and the ones that try to follow the complex rules really look like 2x suckers, once for bothering with all these rules, and twice for paying for the 'privilege'.

-ERD50

 

[wolf]

OP:

Bulls make money, Bears make money, Pigs get slaughtered.

I never saw a person lose money who sold at a profit.

Just some "old" words of wisdom......