While money-making opportunities may seem scarce this year, investors can take a vital step before November 29th to realize any tax losses, reports an article in Barron’s. Investors who bought stock at a higher price than it’s currently trading can use the “double up” strategy to help offset those losses.
For example, American Express is a stock that has been hard-hit this year, though Barron’s posits that the stock will rebound as travel comes back. AmEx shares are down about 17%, but for those investors that bought their stock at its 52-week high of $199.95, they can purchase a matching stock position at the current price, which is much lower, and then sit on it for 30 days. After those 30 days have passed, they can then sell off the shares with the higher price basis, realizing a loss on the position that can then be used to offset gains somewhere else in their portfolio. It’s vital to wait the full 30 days, the article warns; if the stock is sold off before that time has elapsed, investors will run up against the IRS’s “wash-sale rule” which doesn’t allow for the loss.
Aside from doubling up, call options—when holders have the right to buy a security at a set price and on a particular day—can offer the same kind of exposure. Investors don’t risk a lot of money with call options as they cost a fraction of what the underlying stock is priced at, and can benefit if the stock appreciates. Using AmEx as an example again, the stock’s January $145 call, which expires in 2024, cost roughly $2,400 a contract (which holds 100 shares), as opposed to $14,350 for 100 shares at its current price of $143.50. And if the stock recovers by the expiration date, the call contract will be worth significantly more.
Of course, there is always the risk that the stock you choose to double up on weakens. Certainly American Express, though a high-quality company, has greatly underperformed this year. Call options allows for less money at lower risk, the article concludes.
———————————————
Validea runs stock and ETF models based on investment strategies with proven long-term track records. If you’re new to Validea, consider taking a look at our product overview or introductory videos.
