Now, however, for a simple short-against-the-box transaction, the IRS requires you to pay capital gains taxes as if you had sold your long position outright. A broker still may let you enter into this trade, but there are a few onerous rules you will have to adhere to in order to avoid triggering taxes in the current tax year, says Steve Baxley, director of tax and financial planning at.
Nowadays, investors favor a strategy called a "collar" for protecting your gains in a stock. This involves buying an out-of-the-money put and selling an out-of-the-money call against a long position.
For more on collars, see an. In my mind, there is limited upside potential and a vast downside. Perahia continues. Yet you imply that the risk is infinite.
Yeah, if you short and go on vacation. Otherwise, short-selling is a powerful source of profits for many of us. Who do you think you are protecting by cautioning your readers? I do think caution is necessary for anyone who doesn't fully understand the intricacies of any investment strategy. Even a technique like shorting against the box can have its downside. You will lose out on any hefty price gains if the stock climbs.
Less-sophisticated investors may not realize this. Viewed 3k times. Improve this question. Ced Ced 1 1 silver badge 3 3 bronze badges.
Can you clarify what leverage trading with both a short and long position on the same stock is? What is the actual position? BobBaerker I mean buying both a long and a short turbo — Ced. I'm not familiar with "turbo" but what you're describing sounds like a strangle. The issue is that if volatility is expected then the cost to open those positions is high and means you need a much more significant move to profit.
Not entirely sure if relevant to what you're asking about. Hart CO - My initial thought was also a strangle but I asked for clarification because I didn't know what a turbo is. From Wiki, "A rolling turbo is a financial derivative popular in Germany introduced by Goldman Sachs in It is tradable by institutional and private investors and has characteristics similar to contracts for difference.
The value of the underlying stock is multiplied by the leverage value to give the value of the rolling turbo. Unlike other financial derivatives the leverage of a rolling turbo is kept constant on a daily basis. BobBaerker I guess it's just a sort of leveraged investment.
I'm not yet familiar with the whole space but I'd assume they are all quite similar — Ced. Add a comment. Active Oldest Votes. Improve this answer. I think that the OP's question is about a derivative security used in Germany call a turbo, not options: en. BobBaerker Ahh!
Silly me I don't know anything about turbos, hence, not even sure if my example applies. What's the appropriate thing to do here Thanks for the catch. What's the appropriate thing to do? I have no clue. If you need any assistance or additional examples, feel free to contact me. Happy trading! Options involve risk and are not suitable for all investors. No statement on this site is intended to be a recommendation or solicitation to buy or sell any security or to provide trading or investment advice.
Traders and investors considering options should consult a professional tax advisor as to how taxes may affect the outcome of contemplated options transactions.
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