how do you write off an investment with no bid?

[ERICOPOLY]

I have some Jan 17th, 2014 BAC puts with $12 strike.  They have a "bid" that is dangerously close to absolute zero.

 

It is only a 2 cent bid today.

 

I need to take the tax write-off this year, but how do I recognize the loss in 2013 if the bid goes to absolute zero?

 

Is there a means by which a broker will help in buying it very cheap for a fee, or for zero for a fee?  I need to prevent the situation where the only means of exiting the position is through expiration, given that it is 2014 expiration (I need the tax loss this year).

 

It is being held within an Interactive Brokers account.

[jschembs]

There is (or was, when I worked in wealth management) a procedure called "penny for the lot," where the brokerage firm acknowledged the shares effectively had no value. I presume interactive brokers has something similar.

[ERICOPOLY]

I'm not yet finding anything specifically on that suggestion.

 

However, I thought of another question:

 

Can an out-of-the-money put be exercised as a means of tearing it up?

 

 

[hyten1]

what do you mean by  "..tearing it up?"

 

I'm not yet finding anything specifically on that suggestion.

 

However, I thought of another question:

 

Can an out-of-the-money put be exercised as a means of tearing it up?

[jschembs]

presuming he means recognizing the value is zero for tax purposes.

[ERICOPOLY]

See, the trouble is that obviously I don't want to sell the stock for $12, which is what is implied if I exercise the $12 strike put option.  Boy, that would sure be a gift to someone.

 

So, perhaps "exercise" is not the proper word.  I want to somehow tear the sucker up if the bid goes to 0 cents so that I ensure a tax loss in 2013 tax year.

 

 

[Vish_ram]

Place a 1 cent ask (sell ) in your account.

 

IF you have a retirement account (non-taxable), then place a buy at same 1 cent. You are paying yourself, but taking the loss on taxable account. You only pay the trading costs in both accounts.

 

Allow the puts to expire in retirement account

[ERICOPOLY]

Place a 1 cent ask (sell ) in your account.

 

IF you have a retirement account (non-taxable), then place a buy at same 1 cent. You are paying yourself, but taking the loss on taxable account. You only pay the trading costs in both accounts.

 

Allow the puts to expire in retirement account

 

Then I get audited (my luck) and they discover the wash sale.  You can't do what you are proposing -- wash sale rules also apply to purchases you make in retirement accounts.  It can be caught in an audit.

 

I then owe a massive whopping tax bill. 

[ERICOPOLY]

So originally I bought these puts at cost of 92 cents average price.

 

I can take a 92 cent tax loss if I can write them off for 0 cents.

 

But if I sell them for 1 cent to my retirement account, I then get a cost basis of 92 cents in my retirement account (due to wash sale rule).  Then when the 92 cents loss is realized at expiry, I can't use it for any purpose because you can't write off losses in an IRA account.

 

I would lose 100% of the value of the tax loss -- which is a very valuable tax loss because I took short-term capital gains when I sold my BAC class "A" warrants back in March (with the plan of writing that gain off against these put contracts that are about to expire in January).

[Kraven]

Contact the equity derivatives desk at a few IBs.  Tell them you'll sell them the position for a penny.  You might get a bite on that.  Or ask a friend to take them for a penny.  You get your loss and they get a free option.

[Guest deepValue]

Yes, I've done it before on IB. I'd tell you exactly how except I can't for the life of me remember my IB password!

 

Here's what IB says:

 

What if I have a long option which I do not want exercised?

If a long option is not in-the-money by at least $0.01 at expiration it will not be automatically exercised by OCC. If it is in-the-money by at least that amount and you do not wish to have it exercised, you would need to provide IB with contrary instructions to let the option lapse. These instructions would need to be entered through the TWS Option Exercise window prior to the deadline as stated on the IB website.

 

http://ibkb.interactivebrokers.com/article/1718#What_if_I_have_a_long_option_which_I_do_not_want_exercised_

 

^^I'm almost positive that they cancel the contracts as soon as you enter the instruction (during market hours), but I canceled mine within 3 days of expiration so it could be different if you're a month away.

 

 

[ERICOPOLY]

Yes, I've done it before on IB. I'd tell you exactly how except I can't for the life of me remember my IB password!

 

Here's what IB says:

 

What if I have a long option which I do not want exercised?

If a long option is not in-the-money by at least $0.01 at expiration it will not be automatically exercised by OCC. If it is in-the-money by at least that amount and you do not wish to have it exercised, you would need to provide IB with contrary instructions to let the option lapse. These instructions would need to be entered through the TWS Option Exercise window prior to the deadline as stated on the IB website.

 

http://ibkb.interactivebrokers.com/article/1718#What_if_I_have_a_long_option_which_I_do_not_want_exercised_

 

^^I'm almost positive that they cancel the contracts as soon as you enter the instruction (during market hours), but I canceled mine within 3 days of expiration so it could be different if you're a month away.

 

Thank you very much for relaying that anecdote.

 

I had just ended a chat a few minutes ago where I asked the IB representative if I could pay them a fee to buy my position from me.  He said "I believe what you are referring to is Cabinet Trades.  We do not offer that service at IB".

 

So I was bummed out.  You have given me a different question to ask of them now.  However I'm afraid it's a different situation.  I need it cancelled about 17 days before expiry -- the link you showed me merely talks about forcing them not to exercise under any circumstance.

 

Well, I have 2 more days to go to wait out the wash sale period.  The bid is still 2 cents.  Probably will be there still.

[Guest deepValue]

Yes, I've done it before on IB. I'd tell you exactly how except I can't for the life of me remember my IB password!

 

Here's what IB says:

 

What if I have a long option which I do not want exercised?

If a long option is not in-the-money by at least $0.01 at expiration it will not be automatically exercised by OCC. If it is in-the-money by at least that amount and you do not wish to have it exercised, you would need to provide IB with contrary instructions to let the option lapse. These instructions would need to be entered through the TWS Option Exercise window prior to the deadline as stated on the IB website.

 

http://ibkb.interactivebrokers.com/article/1718#What_if_I_have_a_long_option_which_I_do_not_want_exercised_

 

^^I'm almost positive that they cancel the contracts as soon as you enter the instruction (during market hours), but I canceled mine within 3 days of expiration so it could be different if you're a month away.

 

Thank you very much for relaying that anecdote.

 

I had just ended a chat a few minutes ago where I asked the IB representative if I could pay them a fee to buy my position from me.  He said "I believe what you are referring to is Cabinet Trades.  We do not offer that service at IB".

 

So I was bummed out.  You have given me a different question to ask of them now.  However I'm afraid it's a different situation.  I need it cancelled about 17 days before expiry -- the link you showed me merely talks about forcing them not to exercise under any circumstance.

 

Well, I have 2 more days to go to wait out the wash sale period.  The bid is still 2 cents.  Probably will be there still.

 

Have you tried logging into Trader Workstation and looking around in the Option Exercise window? I'll take a look this afternoon if I have time to recover my password (for some reason there's no obvious way to do this), but I was able to find it before just by looking around. I think it was simply 'do not exercise,' but the contracts were 'sold' for 0 immediately after I entered the (irrevocable) instruction.

[ERICOPOLY]

Yes, I've done it before on IB. I'd tell you exactly how except I can't for the life of me remember my IB password!

 

Here's what IB says:

 

What if I have a long option which I do not want exercised?

If a long option is not in-the-money by at least $0.01 at expiration it will not be automatically exercised by OCC. If it is in-the-money by at least that amount and you do not wish to have it exercised, you would need to provide IB with contrary instructions to let the option lapse. These instructions would need to be entered through the TWS Option Exercise window prior to the deadline as stated on the IB website.

 

http://ibkb.interactivebrokers.com/article/1718#What_if_I_have_a_long_option_which_I_do_not_want_exercised_

 

^^I'm almost positive that they cancel the contracts as soon as you enter the instruction (during market hours), but I canceled mine within 3 days of expiration so it could be different if you're a month away.

 

Thank you very much for relaying that anecdote.

 

I had just ended a chat a few minutes ago where I asked the IB representative if I could pay them a fee to buy my position from me.  He said "I believe what you are referring to is Cabinet Trades.  We do not offer that service at IB".

 

So I was bummed out.  You have given me a different question to ask of them now.  However I'm afraid it's a different situation.  I need it cancelled about 17 days before expiry -- the link you showed me merely talks about forcing them not to exercise under any circumstance.

 

Well, I have 2 more days to go to wait out the wash sale period.  The bid is still 2 cents.  Probably will be there still.

 

Have you tried logging into Trader Workstation and looking around in the Option Exercise window? I'll take a look this afternoon if I have time to recover my password (for some reason there's no obvious way to do this), but I was able to find it before just by looking around. I think it was simply 'do not exercise,' but the contracts were 'sold' for 0 immediately after I entered the (irrevocable) instruction.

 

There is a button there that says:  "Lapse (don't exercise)". 

 

Presumably this is the one you were thinking of.  I need to read more about it.

[krazeenyc]

Can you do a private transaction with another individual? IE. Sell the puts to that person (for negative $$ even lol)  in a private transaction and transfer it to them?

[ERICOPOLY]

Here is what I got from their Trader Chat a few minutes ago:

 

 

Aimee: Hello, this is 'Aimee'. How may I help you?

me: In the "Option Exerccise" window.

me: There is a "Lapse (Don't Exercise)" button. What is this for?

me: I want to take a tax loss this year on options with no bid. They are out-of-the-money puts.

me: They don't expire until Jan 17th, 2014.

me: Does the "Lapse" button help me accomplish this?

Aimee: no, lapse is for when you have an in the money option and you do not want it exercised

me: Is it revocable once "lapse" is designated? I have a theory that if it's irrevocable, then the option is thus worthless.

Aimee: Let me get you over to our trade group, as I am not certain. Hold please

ChatSys: Transferring chat from room 'General Assistance' to 'Trade Problems'. A Customer Service Rep will join the chat shortly.

ChatSys: User 'Daniel F' has joined the chat.

Daniel F: Hello, this is 'Daniel F'. Please allow me a moment to read the transcript of your chat thus far and I'll assist you shortly.

Daniel F: You're correct with your theory...When you lapse an option it is irrevocable

me: Is a record created in my financial statement showing that I lapsed the option in 2013?

me: I am rather stressed about this because my $12 strike BAC puts are down to a bid of just 2 cents. They might go no-bid very soon.

me: I need very badly to be able to claim them as a loss in 2013.

me: I can't sell them quite yet because of wash sale rules.

Daniel F: Unfortunately, the lapse will only take affect on expiration date, so it won't show up on your 2013 tax forms

me: What can I do if they go no-bid?

Daniel F: There really isn't anything that we can do for you in that case

[Hielko]

Can't you transfer the position to someone else? You can always sent some near worthless put options my way!

[Kraven]

Can't you transfer the position to someone else? You can always sent some near worthless put options my way!

 

I'm not positive, but I think if you just give it away you don't have a loss per se.  Think of it in the context of a donation.  If the position was donated the claimed amount would be the current worth.  I don't think that gets you a loss.  It somehow has to be realized.  I haven't read this thread in enough detail to know if the answer is somewhere in here, but I think Eric said he can't sell for wash sale reasons.  I don't think it can be declared worthless until the contract is up since theoretically there could be value unless there was a bankruptcy or something like that.  I don't know when the wash sale limitation would be up.  If by 12/31, then it can just be thrown out into the market at whatever someone will pay for it and a loss will be taken or it could be sold to a friend or something for a penny.

[ERICOPOLY]

I don't think it can be declared worthless until the contract is up since theoretically there could be value unless there was a bankruptcy or something like that.  I don't know when the wash sale limitation would be up.  If by 12/31, then it can just be thrown out into the market at whatever someone will pay for it and a loss will be taken or it could be sold to a friend or something for a penny.

 

The last BAC trade I made was on November 7th.  So the wash sale period is indeed up soon.  I may have needlessly freaked out simply because the bid on the Feb $11 strike put is already "no bid".  And the one that I own, the Jan $12 was already at 2 cents and perhaps a very short ride to "no bid" as well.

 

But even if no bid, perhaps it will execute at some tiny price with a "market" order?  Is it ever the case that a market order doesn't fill?  Surely Nassim Taleb would like a chunk of BAC puts for a fraction of a penny?

[Kraven]

I don't think it can be declared worthless until the contract is up since theoretically there could be value unless there was a bankruptcy or something like that.  I don't know when the wash sale limitation would be up.  If by 12/31, then it can just be thrown out into the market at whatever someone will pay for it and a loss will be taken or it could be sold to a friend or something for a penny.

 

The last BAC trade I made was on November 7th.  So the wash sale period is indeed up soon.  I may have needlessly freaked out simply because the bid on the Feb $11 strike put is already "no bid".  And the one that I own, the Jan $12 was already at 2 cents and perhaps a very short ride to "no bid" as well.

 

But even if no bid, perhaps it will execute at some tiny price with a "market" order?  Is it ever the case that a market order doesn't fill?  Surely Nassim Taleb would like a chunk of BAC puts for a fraction of a penny?

 

I think you're probably overly stressed out about it, although in fairness I haven't had to do this exact thing before so I can't assure you it will be done.  That being said, I can't see why it wouldn't.  Looks like you will be free from the wash sale restrictions by early next week.  So once you are just put an ask out there for a market order.  Give it a little time and see if it hits. 

 

To me, if it doesn't hit in a day or 2, then I'd start looking at other things.  See if you can get someone to buy it from you for a penny or something.  Maybe a friend or a parent, someone outside of your house.  I have to believe someone on this board would arrange to take it from you.  If not, I think I mentioned in another post that you can try calling a few equity derivatives desks and see if they'll take it for a penny.  Someone here can probably give you a few contacts and maybe even some names.

 

Finally, and this is a longer shot assuming you can't do any of the things above, you may be able to just "discard" it.  I don't know if this still works, but essentially just have your broker throw it away basically as worthless.  So remove you as owner, the equivalent of throwing something into the trash.  I once was involved in a situation where someone owned a worthless security.  Different from this it actually had some remote obligations, but was truly worthless.  They couldn't sell it and couldn't even pay someone to take it.  They ended up literally throwing it away basically.  They were removed as the record owner and no one was the owner.  In that case I was never quite sure how that worked since someone was supposed to be on the hook for certain things, but they were able to get it done.  I don't know if a retail brokerage would do this though, although I guess you could ask, but I have to believe you can at the very least transfer it to someone for a penny.

 

Good luck.

[ERICOPOLY]

I have to believe you can at the very least transfer it to someone for a penny.

 

Good luck.

 

See, I may be overly paranoid but I've been worrying about the optics of something like that.

 

Perhaps I make an arrangement with a buddy that whenever he needs a tax loss (and I don't), I have him bid above market for one of my worthless assets (a deliberate loss for him).  This allows me to sell the asset at little tax hit to me, and allows him to take a big useful tax loss.

 

Between us, if this goes on for years and years, we can cheat the taxes a bit -- he uses my low tax bracket when convenient, and vice versa.

 

It could be abused as a tax-bracket arbitrage thing.

 

So I just figured it would be best to avoid that kind of thing if at all possible, simply because I don't want to do anything that might be annoying (and potentially costly) to defend against accusations.

[Kraven]

I have to believe you can at the very least transfer it to someone for a penny.

 

Good luck.

 

See, I may be overly paranoid but I've been worrying about the optics of something like that.

 

Perhaps I make an arrangement with a buddy that whenever he needs a tax loss (and I don't), I have him bid above market for one of my worthless assets (a deliberate loss for him).  This allows me to sell the asset at little tax hit to me, and allows him to take a big useful tax loss.

 

Between us, if this goes on for years and years, we can cheat the taxes a bit -- he uses my low tax bracket when convenient, and vice versa.

 

It could be abused as a tax-bracket arbitrage thing.

 

So I just figured it would be best to avoid that kind of thing if at all possible, simply because I don't want to do anything that might be annoying (and potentially costly) to defend against accusations.

 

Of course.  You don't want to do anything that is or could be viewed as flouting the tax code.  I am not talking about that at all.  My point is that if this is truly worthless then someone buying it for a penny is paying a penny more than it's worth just to take it off your hands.  Either there is value here or there isn't.  If not, then someone getting it for a penny is getting a good deal.  At the end of the day, I think that if you put a market order out there someone will probably bite.

[vinod1]

I did not read the whole thread, but I had a similar situation at the end of last year. I had a few HP 2013 calls that were being quoted around 2c, I put a limit order for 1c and then tried a market order but it did not execute. Since the amount I invested is very small I did not give it much thought.

 

I wrote a post on this and there was a suggestion that I could get a friend to put in a bid, but others have commented that it might be matched up to someone else's ask.

 

Vinod

[indirect]

Eric,

 

Get prime broker services with IB. Then get a full broker to buy the contract for you and clear it with IB. Call me i you want more details.

 

A

[ERICOPOLY]

I thought of something creative so it's probably wrong...

 

 

What if I buy a bunch of additional cheap BAC puts for a penny each that actually do expire this calendar year?  There is a series expiring December 21st.

 

Then after buying the new puts, I then sell these pre-existing Jan 2014 puts that I've been trying to unload.

 

The point of this trade is to create a new, more recent purchase for the wash sale cost basis to attach to.

 

Did I create a wash sale that moved the cost basis to the ones that are expiring this year?  So instead of the cost basis moving over to the shares that I purchased on November 7th, it would move over to these new puts that I purchased (the ones that will soon expire this year)?

 

 

I guess the gist of my question is about wash sales -- does the cost basis move to the most recently purchased shares in the 30 day window, or the oldest (first) purchase of shares within the 30 day window?

 

 

EDIT:  This is more of a question for future strategy -- if this works, I could have done this a week ago and not had to worry