From all-in LEAPs
back to all-in Stocks
I moved to all LEAPs in July, the returns overall are good.
I have more shares than when I started in July.
I am trying to figure out the plan to unwind this, get back to shares.
Two aspects that I thought should be considered while I am on this LEAPs path and later complete the unwinding are
- Timing of the transition, not all-at-a-time, but staggered. What are reasonable transition points. Example, convert 10% when SP reaches certain price.
- Tax considerations during the LEAPs journey and the transition timings.
In short, can you guys share your thoughts on '1' and '2'?
IF YOU ARE GENEROUS OR CURIOUS ENOUGH to read further...
Tax considerations: Miscalculations, apparently:
Return calculation:
- My statement on me having more shares now than when I started isn't as appealing after I learnt that even for LTCG, the tax can be > 35% considering state taxes.
LTCG? Maybe not:
- In taxable account I always had LEAPs at least an year out, 13-15 months out.
- I have been switching my LEAPs, moving to ATM and 25% OTM as the SP kept moving up.
- "Switching": I cash out the option by selling a vertical spread, sell the option right at the next strike.
- The tax event triggers when the option is closed. Since my LEAPs are at least an year out, I thought I would be paying only LTCG.
- Tax straddle rules might mean my calculation on the 1 year holding of the long call might be inaccurate. I need to read more on this. I didn't buy pairs/spreads but sold the short call later. For options like I had the categorization would be long-term if the long call tax event is triggered 1 year after I sold the short call?
- I plan to very soon consult a tax pro. That said, I appreciate any inputs.
Timing (Transition points)
- One plan I thought about was to convert to shares once I hit a target count of shares. I might have to calculate taxes, account for this money and use the remaining to calculate if that remaining gets me to the target share count.
- The other plan is to convert to shares at certain points like when current SP being some x% (say 6%, no strong reasoning for this number) below ATH seen so far during regular trading hours.
- One other approach is to go by SP, x% converted at SP 500, so on.
If the SP goes to 600-700, there's a good chance (depending on tax part), my portfolio value would reach a point where I will have the freedom to spend time in my life on something I am passionate about, doing things that will have positive impact on those who are less fortunate.
Thoughts?
@Lycanthrope @StealthP3D @FrankSG Tagging you as I found some wisdom in your posts, related to the topic of this post of mine.