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OK, I read the article and I still don't get how this works. If you look at the graph near the bottom, he's offsetting short-term gains with loss. But it's a

by refurb 4y ago

OK, I read the article and I still don't get how this works. If you look at the graph near the bottom, he's offsetting short-term gains with loss. But it's a loss, he's losing money. And looking at the two, many years have bigger losses than gains. They even state in the article "Of course, if you consider the trade as a whole, it makes no money."

ceejayoz 4y ago
The answer is in the sentences surrounding it. > One strategy, in simplified form, works like this: Make two bets that should move in opposite directions. Think of, say, both betting on and against Coca-Cola’s stock. Towards the end of the year, one bet will be up, and one will be down. At 365 days, the last day a trade is considered short-term, sell the one that’s down. A day later, sell the one that’s up. > Of course, if you consider the trade as a whole, it makes no money. But that isn’t the point. You’ve found a risk-free way to generate two valuable commodities: short-term losses and long-term gains. They're picking which gain/loss to realize - in both directions, on the same stock - in a way that means they always win.
- SilasX 4y ago
  >>You’ve found a risk-free way to generate two valuable commodities: short-term losses and long-term gains. A loss is not valuable. Edit: see my follow-up comment before you make another post re-explaining the scheme. The point is it's bad explanation because the merits have nothing to with "losses" being generally "valuable commodities". https://news.ycombinator.com/item?id=34390221 https://news.ycombinator.com/item?id=34390221
  - ceejayoz 4y ago
    It is when it's offset by an identical gain, at a different tax rate.
    - SilasX 4y ago
      I got that part. But look at the quote: The article is attempting to explain the benefit of the tax scheme by saying that it reduces into components that are valuable in themselves -- "valuable commodities". The scheme works as a whole, but the dynamics of it have nothing to do with losses being valuable commodities. It's just an over-clever writer trying to jazz up the explanation without realizing they're saying nonsense in the process and introducing a bad model.
  - goodoldneon 4y ago
    The company makes nearly all of its money on short-term trades, but short-term trades have a much higher tax rate than long-term gains. Since short- and long-term taxes are calculated in separate buckets, if you create losses in the short-term bucket then you can drastically reduce your tax burden. These aren't really losses though, since they're balanced by opposite long-term bets
  - bryanlarsen 4y ago
    A gain of X minus a loss of X is 0, but if you claim the loss at the 40% tax rate and the gain at the 20% tax rate you've suddenly reduced your taxes by 20% of X, which is significantly valuable.
    - SilasX 4y ago
      Yes, but that means the the scheme as a whole is valuable, not that a loss can rightly be called a "valuable commodity". See the follow-up[1]. This is like those Saturday morning commercials that say Cocoa-puffs is part of a balanced breakfast, and tyring to explain that by asserting how each component, including the Cocoa-puffs, is balanced. That's not how it works, the aggregate property is not piecewise reducible. [1]https://news.ycombinator.com/item?id=34390221 https://news.ycombinator.com/item?id=34390221
bo1024 4y ago
How I understood it, extremely simplified: Suppose during 2023, you make $1B from short-term trading. If that's all that happened, you'd be taxed for short-term capital gains on it. But also, this happens: July 1, 2022: Place a large bet "A" on S&P 500, and a separate large bet "B" against the S&P 500. July 1, 2023 (365 days later): Suppose S&P500 is up. Sell your bet B. You lose $1B in short-term gains. July 2, 2023 (366 days later): Sell your bet A. You make essentially the same amount that you lost yesterday, $1B, but in long-term gains. Total for 2023: $0B net short-term gains, $1B net long-term gains, taxed at a low rate.
- deleted 4y ago
  [deleted]
- refurb 4y ago
  You just explained it better than a 2000 word article. Maybe you should write for Propublica?

by refurb 4y ago

ceejayoz 4y ago

The answer is in the sentences surrounding it. > One strategy, in simplified form, works like this: Make two bets that should move in opposite directions. Think of, say, both betting on and against Coca-Cola’s stock. Towards the end of the year, one bet will be up, and one will be down. At 365 days, the last day a trade is considered short-term, sell the one that’s down. A day later, sell the one that’s up. > Of course, if you consider the trade as a whole, it makes no money. But that isn’t the point. You’ve found a risk-free way to generate two valuable commodities: short-term losses and long-term gains. They're picking which gain/loss to realize - in both directions, on the same stock - in a way that means they always win.

SilasX 4y ago
>>You’ve found a risk-free way to generate two valuable commodities: short-term losses and long-term gains. A loss is not valuable. Edit: see my follow-up comment before you make another post re-explaining the scheme. The point is it's bad explanation because the merits have nothing to with "losses" being generally "valuable commodities". https://news.ycombinator.com/item?id=34390221 https://news.ycombinator.com/item?id=34390221
- ceejayoz 4y ago
  It is when it's offset by an identical gain, at a different tax rate.
  - SilasX 4y ago
    I got that part. But look at the quote: The article is attempting to explain the benefit of the tax scheme by saying that it reduces into components that are valuable in themselves -- "valuable commodities". The scheme works as a whole, but the dynamics of it have nothing to do with losses being valuable commodities. It's just an over-clever writer trying to jazz up the explanation without realizing they're saying nonsense in the process and introducing a bad model.
- goodoldneon 4y ago
  The company makes nearly all of its money on short-term trades, but short-term trades have a much higher tax rate than long-term gains. Since short- and long-term taxes are calculated in separate buckets, if you create losses in the short-term bucket then you can drastically reduce your tax burden. These aren't really losses though, since they're balanced by opposite long-term bets
- bryanlarsen 4y ago
  A gain of X minus a loss of X is 0, but if you claim the loss at the 40% tax rate and the gain at the 20% tax rate you've suddenly reduced your taxes by 20% of X, which is significantly valuable.
  - SilasX 4y ago
    Yes, but that means the the scheme as a whole is valuable, not that a loss can rightly be called a "valuable commodity". See the follow-up[1]. This is like those Saturday morning commercials that say Cocoa-puffs is part of a balanced breakfast, and tyring to explain that by asserting how each component, including the Cocoa-puffs, is balanced. That's not how it works, the aggregate property is not piecewise reducible. [1]https://news.ycombinator.com/item?id=34390221 https://news.ycombinator.com/item?id=34390221

bo1024 4y ago

How I understood it, extremely simplified: Suppose during 2023, you make $1B from short-term trading. If that's all that happened, you'd be taxed for short-term capital gains on it. But also, this happens: July 1, 2022: Place a large bet "A" on S&P 500, and a separate large bet "B" against the S&P 500. July 1, 2023 (365 days later): Suppose S&P500 is up. Sell your bet B. You lose $1B in short-term gains. July 2, 2023 (366 days later): Sell your bet A. You make essentially the same amount that you lost yesterday, $1B, but in long-term gains. Total for 2023: $0B net short-term gains, $1B net long-term gains, taxed at a low rate.

deleted 4y ago
[deleted]
refurb 4y ago
You just explained it better than a 2000 word article. Maybe you should write for Propublica?