Tax loss strategies are used in the Systematic Covered Writing process to defer taxes. This is no
different that 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,
Tax
Deferral Strategy
Example
THE DATE: February 2, 2007
THE STOCK: Renovis, Inc. (RNVS) is a biopharmaceutical company with a primary focus on the discovery, development
and commercialization of drugs to treat neurological diseases and disorders.
WHY TDS: There will be times when a stock loses significant value. In a taxable account a covered writer looks at
this negative event as a positive opportunity. The opportunity at hand is to use the depressed stock to create a paper realized capital
loss, which in turn can be used to reduce the current liability created with realized gains. The idea is to maintain control of the capital that would be used for taxes for at least
another year, if not longer. Just as a tax payer looks for all the legitimate deductions he or she can find, an investor should
do the same.
Email Comments:
In
the 100k portfolio, there are 300 shares of RNVS that have not been used as post of a TDS trade. Given the difference between
the purchase price and the current price, there is a nice ‘loss’ to be created. This morning, 300 additional share were
purchased to be used as an offsetting holding. For the first time, the writer is not going to covered this stock. It will be
held for 30 days and then sold to create a sizable loss in the portfolio.
If
you have not looked recently . . . you may want to check out the commentary page for this portfolio. (As of this moment, this
new RNVS holding and the IOC addition have not been updated to the online view.
The Covered Writer
THE COMMENTARY: As mentioned in the email message. The writer is going
about this TDS position without a call being written. The rational is the premium is so low for a March $2.50 call that it seems better
to just stay long the stock rather than selling a longer call. These position are in the 100k Portfolio and as you can see by the
notations in the Cash Generated column, there are 300-shares that have not been used for the creation of a paper loss.
This hope is that RNVS ends up in the $3.50 to $3.90 range thirty days from now. For this position, the writer
creates an Outlook reminder to look at this position on March 2nd. This way, even though there may be many pans in the fire, the
writer can still keep track of what's cooking!
Comments, questions and opinions are always welcome . . .
rlcoveru@wavecable.com
The Covered Writer
Tax loss strategies are used in the Systematic Covered Writing process to defer taxes. This is no
different that claiming all the deductions possible when completing you personal income tax return in 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.
PLEASE NOTE THAT THIS EXAMPLE IS NOT
TO BE CONSIDERED AS A RECOMMENDATION TO INVEST IN RNVS 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!
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 © 2005. All rights reserved.
Revised:
02/05/07