Long Box is a complex strategy that can (in some jurisdictions) have beneficial
effects for tax planning from year to year. If your incentive for this strategy
is a tax play, you should consult with your tax advisor beforehand to evaluate
whether or not it is valid where you live.
strategy involves creating a lower strike Long Synthetic Future and countering
it with a higher strike Short Synthetic Future. The long and short positions
cancel each other out, and you are left with a straight horizontal line.
trick is to ensure that the sum of your net purchases is less than the sum of
your net sales in order to make a profit. Remember, there are four legs in this
strategy, two longs and two shorts, and the strategy is typically a net debit
because you are buying in-the-money options and selling out-of-the-money
traders who are sitting on vast capital gains will seek to close out the loss making
legs of the strategy just before the end of the tax year, thereby setting off
those losses against their gains and reducing their capital gains tax bill for
you need to remember that any open short positions are generally treated as
100% gains until the position is closed.
volatility is good for the Long Box, particularly if you are looking to conduct
the type of trade outlined previously, where you leg in and out. Ideally, you
want a big fall followed by a big rise, or vice versa, and leg out in
accordance with your original motivation for doing the trade in the first
this strategy as a hedge for tax purposes.
is trading t $34.92 on June 4, 2011.
August 2011 30 strike puts at $1.00.
August 2011 30 strike calls at $6.00.
August 2011 strike puts at $6.20.
August 2011 40 strike calls at $1.20.
benefit is that if this trade is executed properly, it can hedge your tax
risk is the net credit or net debit minus the difference between strikes. The
reward is the same.
difference between strikes minus the net debit paid or net credit received.
net credit received or net debit paid, minus difference in strikes.
volatility has a positive effect.
Of Time Decay
Maximum profit is made at expiration.
hold the long options into the last month before expiration.
can unravel as elements of the trade become profitable or are making a loss.
out the trade.