4 replies to this topic

[jjc]

There are tax advantages to holding futures, for periods less than a year, however there is a cost to margin; And if you are a long term bull and you plan to hold for longer than a year what is the cost analysis to holding spy vs SP futures; Dow vs DJ;?

[jjc]

There are tax advantages to holding futures, for periods less than a year, however there is a cost to
margin; And if you are a long term bull and you plan to hold for longer than a year what is the cost analysis to holding spy vs SP futures; Dow vs DJ;?

Ok: to start;
1) Taxes: You have to define your period of bullishness; longer than one year, less than one year;

2) How bullish: The cost of margin vs the gain with the extra leverage; Slope of the price curve and dividends important here as well as the cost of the margin.
.....
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[kc135a]

There are tax advantages to holding futures, for periods less than a year, however there is a cost to
margin; And if you are a long term bull and you plan to hold for longer than a year what is the cost analysis to holding spy vs SP futures; Dow vs DJ;?

I have seen people lose incredible amounts of profit and even a winner to a loser by just trying to hold for a long term versus a short term gain.

Best to take the profit when offered and be happy that it is a gain. If it works out to be a long term gain so be it, but do not try to hold beyond a reasonable sell point to get the tax benefit. In most cases a person would have been net ahead to pay the short term rate.

KC

[jjc]

There are tax advantages to holding futures, for periods less than a year, however there is a cost to
margin; And if you are a long term bull and you plan to hold for longer than a year what is the cost analysis to holding spy vs SP futures; Dow vs DJ;?

I have seen people lose incredible amounts of profit and even a winner to a loser by just trying to hold for a long term versus a short term gain.

Best to take the profit when offered and be happy that it is a gain. If it works out to be a long term gain so be it, but do not try to hold beyond a reasonable sell point to get the tax benefit. In most cases a person would have been net ahead to pay the short term rate.

KC

Thanks KC; Yes; Makes sense. Here is where I'm coming from:

We know buy and hold works historicly.... But buy and hold with margin? I am just
curious. I hear people snorting talking about a buy price many many moons ago and holding
contracts..... If you are that bullish, does it even make sense to hold with margin.... Clearly you have
to have a model you play to. I'm asking for those people to share that model with us (and if not us me; lol).

I am ST (next 8 days) bullish here (BTW), but I'm trying understand (and possibly gain from) the longer term margin game. I can think of a few arb situations to avoid a few tax dollars in the instances where you turn bearish. I just wonder does any one play that angle, and what about these long term contract holds...

jjc

[Darris]

jcc, IMO, you want to hold SPY in the acct for the long term, and use the futures contract to hedge as deemed necessary. An ES futures contract cost $500-$700 per contract to hold the full 3 month period based on premium errosion, but half of that is offset by the SPY dividend for the same period. The futures gain is taxed at 40% short term, and 60% long term, but the SPY dividend is taxed at a special "qualified dividend" rate of 15%. Depending on how long you maintain this strategy, assuming more than a few years, the long term tax rate on the SPY capital gain could be as low as 20%. For example, you could take a $75K account and buy 500 shares of SPY, and still have enough cash to cover the $4K margin requirement for 1 ES futures contracts, which allows for no margin interest. If the account was less than $75K, you could replace the hedging strategy with options, but the tax treatment would degrade since options are taxed at 100% short term rates. Note: might be a more interesting proposal if this scenario assumed using the SSO 2X long ETF rather than SPY. Owning ETF's with high dividend rates are the way to go with a futures hedging strategy for tax purposes.