Systematic Covered Writing

 . . . more than just covered calls . . .

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Tax loss strategies are used in the Systematic Covered Writing process to defer taxes. This is no different than claiming all the deductions possible to reduce your earned income tax liability.  Having said that . . . please verify this process with your CPA .  It is important that your professional advisors are on the same page as your investment strategies.

As with all SysCW examples, the transactions listed in the information that follows took place on the dates listed.  Note that historical executions of various transactions may, or may not, be repeated in the future.

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Tax Deferral Strategy Example

THE DATE: August 3, 2007    

THE STOCK:  NTE - Nam Tai Electronics

WHY TDS:  The SysCW process for stocks that lose value in a taxable account is rather unique.  The first thing to do is to create a TDS position in order to take advantage of the decrease in value.  Once that is completed . . . a covered writer would then consider using the Dollar Cost Averaging strategy in order to reduce the cost basis.  Subscribers will be able to follow this process over and over throughout the year. It works because it is planned to work.

Today, a new TDS position began using TELK.  You can review that position by clicking NEW TDS. Here is the other end of the spectrum . . . the closing of a TDS position. This position also happens to be in the online $100k Portfolio, which basically means that subscribers have been able to follow the activity from its inception.

The data below is presented in three sections.

1. Section One - Provides all of the historical data for both the original and the TDS holdings in this portfolio.  Keep in mind this is simply a portion of the Position Tracker data that has been continuously available for subscribers since the portfolio was established.

2. Section Two - Isolates the closing of the TDS holding.  Keep in mind . . . in the writer's eyes, this is a separate position, which happend to end with a small ($3.48) gain. Always remember, the purpose of a TDS position is to create a lose . . . not necessarily to set any kind of record for realized profit. As with all positions, some end up better than others.

3. Section Three - Here is the data as recorded in the Gains Tracker for just the pertinent positions. The goal of the TDS position is to create a paper loss.  In this case the loss ended up being $1,167.53. If the writer happens to be in a 25% tax bracket, the use of the SysCW TDS strategy will defer $291.88 in taxes to some future year.

It is hoped you would agree that leaving the $291.88 in the account for at least one year has a 'real' benefit to the tax payer.  It is one thing to create a gain . . . it is another to keep as much of it as possible for as long as possible.

 

PLEASE NOTE THAT THIS EXAMPLE IS NOT TO BE CONSIDERED AS A RECOMMENDATION TO INVEST IN NTE STOCK OR ANY OTHER EQUITY.  THE INFORMATION IS PROVIDED FOR EDUCATIONAL PURPOSES ONLY.  THERE IS NO GUARANTEE THAT SIMILAR TRANSACTIONS CAN BE EXECUTED IN THE FUTURE. INVESTING IN THE STOCK MARKET INVOLVES RISKS, DO SO ONLY WITH A KNOWLEDGE AND UNDERSTANDING OF THE RISKS INVOLVED!

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The information provided above is for informational purposes only, and no mention of a particular security constitutes a recommendation to buy, sell, or hold that or any other security, or that any particular security, portfolio of securities, transaction, investment strategy is suitable for any specific person. You further understand that the Covered Writer will not advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the information available on this website may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Always remember that past results are not necessarily indicative of future performance.

These are the terms of use.  Why are they here?  Because the examples provided are real.  The transactions actually took place.  The dates are real, the positions are real.  Some transactions will have been executed on the day you receive the email.  What you are agreeing to, is the fact that in no way is it being suggested that you can, or should, enter a similar position.  Why?  Because that would be providing investment advice and the Covered Writer is not authorized to do that.  There is also no guarantee that similar transactions could be executed at any time in the future. Only licensed brokers are allowed to provide investment advice.  Therefore, you are agreeing that the preceding example was provided for 'educational purposes' for the sole purpose of illustrating the Systematic Covered Writing strategies.

Thank you!

SYSTEMATIC COVERED WRITING
Copyright © 2007. All rights reserved.
Revised: 08/04/07