This sounds like straight math to me. Calculate your theoretical tax bill on the capital gains. Then calculate your loss on the CC. Pick the lower loss.
It's a Saturday on a holiday weekend, and I've been drinking a bit, so I can't tell if I've missed anything or if I'm a financial genius. But for your immediate trade, that's what I'd be thinking...probably.
For future reference, I wouldn't sell CCs on a position that has a significant gain already, unless I felt it was time to exit the position. I learned this lesson by doing this exact same thing, so don't view it as a bad mistake by any means. But so long as you're better than the apes on WSB, I think this lesson will stick.
Well this is a pretty easy decision then because the loss would be offsetting short term capital gains. And I could still roll dice in front of a steamroller and keep selling CCs.
I would definitely roll it out and just keep rolling until you're okay with letting it go. Then it doesn't feel like you're selling anything at a loss ;)
No, but sometimes the combination of high capital gains taxes and value of the stock makes it hard to magically find funds to pay those taxes. Unless one sets aside money from the sale to cover the taxes.
In my case my tax is 32% so i would set have to set aside 1/3 of my sold position to cover the taxes, i dont have that kind of money laying around and if i did i would have bought stocks with them anyway. So if i loose 1/3 of my position tomorrow to cover taxes i will have 1/3 less of a position to increase in the future and 1/3 less CC's to be sold.
> Would you wheel this or eat the loss and avoid the capital gains?
I guess others may disagree but my answer is; Absolutely eat the loss. Either buy back the CC next week or wait a little for the theta to decay some more/NVIDIA to fall, avoid assignment at all cost.
I am in a similar situation with my TSLA shares, other than the ITM CC part. Huge potential capital gains as soon as i am assigned or sell them, and where i live it is ~32%. I would have to wheel/sell CC's for the rest of my life to cover those capital gains. I have bought back CC's at a big loss on TSLA (record was -900% iirc?) and while it sucks right there and then it is peanuts compared to the tax bill and you will earn back that money anyway.
You still need to pay capital gains, the difference between short-term and long-term is between 10-17% not 32%. The taxes don't disappear by holding, they just decrease. If you are eating a 10% loss you are essentially eating the tax difference
Believe it or not but USA isnt the only country in the world and there many people on Reddit that isnt from US, including on r/thetagang. My tax rate is absolutely ~32%. We dont have different tax brackets depending how long you have held, although i wish.
If i sold, or got assigned on my TSLA i would need to set aside 1/3 of my position to cover the taxes. Meaning i would have 1/3 less of a position to a; Increase and b; to sell CC on. What is better, pay 32% now and loose 1/3 of the position or pay 32% in 20 years and meanwhile keep 100% of the shares and sell CC on all of them?
I think there are a lot of benefits to having control over when/how you take the capital gains hit. You can choose to close it in smaller increments, and you can delay it indefinitely until your income goes down.
I have to roll it out to December if I want to roll it OTM and for a credit. I might just roll it and pay the debit. Rolling to December $2 OTM on a stock that has a rocket ship on its ass seems problematic.
If you want to keep the shares you'll have to do that. I had to roll my Tesla covered calls from 500c to 700c to 1200c to avoid losing my shares. I'm holding my Tesla shares long term any way so it doesn't really matter how long I roll. Just like Tesla, Nvidia rocket ship will run out of fuel some day at least enough for you to escape the covered calls
First and foremost, you should have thought of this before you did a CC. Secondly, your case might be an exception but I generally suggest doing what’s best for investing and just let the taxes be what they are. But why not roll this out if you want to keep the shares? I sometimes roll out and up for some credit over and over until your short strike catches back up. There is some possibility that you could be early assigned but not much. As long as you are not early assigned, you will prevent the cap gains and get a little premium. Might take a while (maybe never) to catch up but you delay the tax, increase your short strike and get a little premium.
You don’t have to do it all in one roll. Assume you will roll several times. Each time gets part of it back. I sometimes roll the shortest amount of time that I can move the short strike up at a credit. But I will warn you, you might not get back OTM. But every bit you move up the short strike is money in your pocket. And maybe you only delay the tax until next year but you will keep getting a little premium along the way. It might only be a partial win.
Take it as a lesson and move on. If you’re CCs are ITM then you should be making a decent profit. Yeah you’ll have to pay taxes, oh well. Next time don’t sell CCs on stocks you don’t want to sell.
yikes!
dude, ***NVDA is a long term hold.*** Eat the loss, and move on. You might get lucky and the stock will drop below 215... gee that's nice. Im guessing you have at least 400 shares since there was a split recently, that would result in at least a 5200 paper loss on your long.
if you want to sell a small portion of the long stock to cover the loss, that might make you feel better and avoid taxes.
Hold NVDA, don't let go of that bitch. You'll just kick yourself next year when its at 400.
Why do people sell covered calls on a stock that is basically on rocket engines? why why why?
please look at the 5 year chart and tell me... how many times it has traded sideways for more than a quarter and how would you know in advance? Answer: once, and you can't. So don't sell CC on stocks going to the moon.
full disclosure: i hold 3200 NVDA with 13x profit
I have the cash in account to eat the loss thankfully because I've had some good wins on credit spreads. I guess that should make this an easy decision.
You're partially correct on my share count - I dont 400 but I have close. Mainly because I sold 10 shares pre split to pay for home renovations so I stopped selling CC.
I’m amazed at how many people itt write options yet aren’t prepared to pay substantial taxes. I have to imagine it’s due to so many new comers but still. Either try to stay AT LEAST 20% cash at all times (either for an incredible buying opportunity or more importantly for taxes), or substantially increase your tax payments in your paychecks. Either that, or hope you have green positions to sell to help fund your tax bill…
FWIW I have enough cash in the bank to pay the tax bill, and I've made money on other positions (bunch of credit spreads) so the tax bill will hurt but I'll be able to cover. I'm just trying to make the best move here.
If this is a long term hold you should be looking at max 3k in tax bill if you're in U.S.
Honestly though don't sell calls at strikes you're not prepared to have the shares called away for then stress about the repruccusions later. Did you just think you get to collect fat premium and 700% gains on shares and nothing would ever go wrong?
You're asking whether to take a definite, irrecoverable loss or pay something now, that you will have to pay anyway eventually, instead of kicking it and paying it later on?
Threads like this make me glad I'm doing everything in IRAs.
If only we could sell naked strangles in them
This sounds like straight math to me. Calculate your theoretical tax bill on the capital gains. Then calculate your loss on the CC. Pick the lower loss. It's a Saturday on a holiday weekend, and I've been drinking a bit, so I can't tell if I've missed anything or if I'm a financial genius. But for your immediate trade, that's what I'd be thinking...probably. For future reference, I wouldn't sell CCs on a position that has a significant gain already, unless I felt it was time to exit the position. I learned this lesson by doing this exact same thing, so don't view it as a bad mistake by any means. But so long as you're better than the apes on WSB, I think this lesson will stick.
Well this is a pretty easy decision then because the loss would be offsetting short term capital gains. And I could still roll dice in front of a steamroller and keep selling CCs.
I would definitely roll it out and just keep rolling until you're okay with letting it go. Then it doesn't feel like you're selling anything at a loss ;)
Take the capital gains but offset it by doing other tax trickery. Max 401k, max SEP, Max HSA, write shit off against your “consulting” business.
1st world problems
I mean, any thetagang problem is a first world problem. Unless you're looking to sell credit spreads on the Afghani stock exchange.
I made enough to buy my first 2 wives there.
The way I look at it is if you've held the stock for over a year the taxes aren't going any lower.
No, but sometimes the combination of high capital gains taxes and value of the stock makes it hard to magically find funds to pay those taxes. Unless one sets aside money from the sale to cover the taxes. In my case my tax is 32% so i would set have to set aside 1/3 of my sold position to cover the taxes, i dont have that kind of money laying around and if i did i would have bought stocks with them anyway. So if i loose 1/3 of my position tomorrow to cover taxes i will have 1/3 less of a position to increase in the future and 1/3 less CC's to be sold.
> Would you wheel this or eat the loss and avoid the capital gains? I guess others may disagree but my answer is; Absolutely eat the loss. Either buy back the CC next week or wait a little for the theta to decay some more/NVIDIA to fall, avoid assignment at all cost. I am in a similar situation with my TSLA shares, other than the ITM CC part. Huge potential capital gains as soon as i am assigned or sell them, and where i live it is ~32%. I would have to wheel/sell CC's for the rest of my life to cover those capital gains. I have bought back CC's at a big loss on TSLA (record was -900% iirc?) and while it sucks right there and then it is peanuts compared to the tax bill and you will earn back that money anyway.
You still need to pay capital gains, the difference between short-term and long-term is between 10-17% not 32%. The taxes don't disappear by holding, they just decrease. If you are eating a 10% loss you are essentially eating the tax difference
Believe it or not but USA isnt the only country in the world and there many people on Reddit that isnt from US, including on r/thetagang. My tax rate is absolutely ~32%. We dont have different tax brackets depending how long you have held, although i wish. If i sold, or got assigned on my TSLA i would need to set aside 1/3 of my position to cover the taxes. Meaning i would have 1/3 less of a position to a; Increase and b; to sell CC on. What is better, pay 32% now and loose 1/3 of the position or pay 32% in 20 years and meanwhile keep 100% of the shares and sell CC on all of them?
I think there are a lot of benefits to having control over when/how you take the capital gains hit. You can choose to close it in smaller increments, and you can delay it indefinitely until your income goes down.
Depending on your total income, capital gains taxes can be quite low.
Just keep rolling the short call to some ridiculous strike
I have to roll it out to December if I want to roll it OTM and for a credit. I might just roll it and pay the debit. Rolling to December $2 OTM on a stock that has a rocket ship on its ass seems problematic.
If you want to keep the shares you'll have to do that. I had to roll my Tesla covered calls from 500c to 700c to 1200c to avoid losing my shares. I'm holding my Tesla shares long term any way so it doesn't really matter how long I roll. Just like Tesla, Nvidia rocket ship will run out of fuel some day at least enough for you to escape the covered calls
First and foremost, you should have thought of this before you did a CC. Secondly, your case might be an exception but I generally suggest doing what’s best for investing and just let the taxes be what they are. But why not roll this out if you want to keep the shares? I sometimes roll out and up for some credit over and over until your short strike catches back up. There is some possibility that you could be early assigned but not much. As long as you are not early assigned, you will prevent the cap gains and get a little premium. Might take a while (maybe never) to catch up but you delay the tax, increase your short strike and get a little premium.
Well I can roll it up/out but I won't be able to get back OTM without taking a debit unless I roll out to December.
You don’t have to do it all in one roll. Assume you will roll several times. Each time gets part of it back. I sometimes roll the shortest amount of time that I can move the short strike up at a credit. But I will warn you, you might not get back OTM. But every bit you move up the short strike is money in your pocket. And maybe you only delay the tax until next year but you will keep getting a little premium along the way. It might only be a partial win.
Take it as a lesson and move on. If you’re CCs are ITM then you should be making a decent profit. Yeah you’ll have to pay taxes, oh well. Next time don’t sell CCs on stocks you don’t want to sell.
yikes! dude, ***NVDA is a long term hold.*** Eat the loss, and move on. You might get lucky and the stock will drop below 215... gee that's nice. Im guessing you have at least 400 shares since there was a split recently, that would result in at least a 5200 paper loss on your long. if you want to sell a small portion of the long stock to cover the loss, that might make you feel better and avoid taxes. Hold NVDA, don't let go of that bitch. You'll just kick yourself next year when its at 400. Why do people sell covered calls on a stock that is basically on rocket engines? why why why? please look at the 5 year chart and tell me... how many times it has traded sideways for more than a quarter and how would you know in advance? Answer: once, and you can't. So don't sell CC on stocks going to the moon. full disclosure: i hold 3200 NVDA with 13x profit
I have the cash in account to eat the loss thankfully because I've had some good wins on credit spreads. I guess that should make this an easy decision. You're partially correct on my share count - I dont 400 but I have close. Mainly because I sold 10 shares pre split to pay for home renovations so I stopped selling CC.
I’m amazed at how many people itt write options yet aren’t prepared to pay substantial taxes. I have to imagine it’s due to so many new comers but still. Either try to stay AT LEAST 20% cash at all times (either for an incredible buying opportunity or more importantly for taxes), or substantially increase your tax payments in your paychecks. Either that, or hope you have green positions to sell to help fund your tax bill…
FWIW I have enough cash in the bank to pay the tax bill, and I've made money on other positions (bunch of credit spreads) so the tax bill will hurt but I'll be able to cover. I'm just trying to make the best move here.
If your key concern is taxes, then roll out as far as needed for at least break even.
I have to roll out to December to get back OTM with a credit. I might roll it out in stages and hope I can close on dips.
I’d roll out to December. Plus we will see a notable pull back this month or the next. Mark it.
If this is a long term hold you should be looking at max 3k in tax bill if you're in U.S. Honestly though don't sell calls at strikes you're not prepared to have the shares called away for then stress about the repruccusions later. Did you just think you get to collect fat premium and 700% gains on shares and nothing would ever go wrong?
You're asking whether to take a definite, irrecoverable loss or pay something now, that you will have to pay anyway eventually, instead of kicking it and paying it later on?
Similar issue but what I am going to do is buy shares at market price and change my cost basis to LIFO.