Tax Loss Selling

[whistlerbumps]

What are people's opinions on tax loss selling?  Specifically do you think it is more prevalent in years with large gains (2013) where people need something to offset income or in years with losses where people are just puking losers?  Also, what do people think of 10/31 (mutual funds) vs. 12/31 end dates?

[ERICOPOLY]

A person with shorts might be trying to roll the position for continued short protection, while at the same time realizing some tax losses on the existing short position.

 

So a month before the end of the year, he may purchase new puts to replace the ones expiring in early 2014.  Then, 30 days later, he  closes out the short positions to harvest the tax loss.  But he keeps the same notional short exposure.

 

So you get this weird effect where he had twice the amount of short exposure for the first 30 days, then a wave of short covering.

 

So, I don't know -- this might create weird volume that could be construed as negative at first, and then bullish 30 days later.

 

It also mirrors what I've been doing -- so there you go.  I presently have a double load of BAC puts that will be halved before the year is up.  Now if a lot of people did that, it would look like a lot of people were exiting short positions at year's end and turning bullish.