- 11 - Income tax treatment of your gains or losses on each contract will be different depending upon the way your contract is closed out. There are ways to close out a contract in which you have a gain so that it will be taxed as a long term capital gain. For the contract in which you have a loss, you may liquidate so as to have ordinary loss. Depending upon your tax bracket, your risk of after tax loss on both of these contracts will be very substantially reduced and will quite possibly be converted into an after tax gain. Any net pre- tax profit will be significantly increased. 9. Can you give me an example ? On February 15, 1978, the price of November 1978 gold was $188.30 per ounce (Wall Street Journal, February 15, 1978 CMX). On the same date, the price of February 1979 gold was 192.30 per ounce. Seven months later on September 20, 1978, the price of November 1978 gold was $212.70, and the price of February 1979 gold was $217.90. If you had sold November 1978 gold on February 15, 1978, and bought February 1978 gold at the same time then liquidated each contract on September 20, 1978, you would have incurred a loss of $24.40 ($212.70 - $188.30) per ounce on your short posi- tion and realized a gain of $25.60 per ounce on your long position. Based on current tax rates, and upon the assumption that you close out your positions as described above, your net after tax gain on your February 15, 1979 gold would have been approximately $20.48 per ounce, and your net after tax loss on November 1978 gold would have been approximately $12.20 per ounce. The combined after tax gain would have been $8.28 per ounce. Considering there are 100 ounces of gold per contract your net dollar profit would be $828.00 per spread. These figures do not include sales and administrative fees which will be discussed later. 10. What would have happened if I had bought November 1978 gold and sold February 1979 gold instead? On your long (November) contract, you would have a before tax gain of $24.40 per ounce, and on yourPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011