CRWD +22% MTD: Get Rich Quick Trick

Peter here at Bryant Park.

RIDDLE: What can be short and long at the same time and costs a lot?

Capital gains and taxes.

I’ve been pondering my approaches relative to the tax regimes of the developed West, which, in essence, don’t really want people to get a windfall without paying the state first—37% for short-term capital gains.

This comes to mind when you think of your portfolio composition, especially if an idea really works in your favor. In such instances, the short term gains can be significantly impacted by the tax regimes.

Therefore, I will do the following: In instances where I want to turn a short-term idea into a long-term one, I will use long-duration options to hedge or protect the short-term gains captured. In some cases, I will use a pair trade, such as shorting China and going long on Taiwan, to offset each other if needed or if the spread expands significantly, adding option hedges if necessary.

This approach allows the position to ride with the hedge, as opposed to using an outright stop loss or trailing stop loss, thereby moving down the capital gains tax brackets from short-term capital gains tax to long-term capital gains tax.

Additionally it will allow these winners to run.

The element of buying power relative to the unrealized capital gains will still provide one with dry powder if needed or prose the question of opportunity cost. Such as, is this new investment thesis superior to the winner at hand. If so consider the exit and if not leave the new investment thesis on the watch list.

Long Taiwan 🌺

Short China 🌑

Throughout Q1 + Q2

There you have it—an elegant manner to make short-term gains with long-term taxes.