Wednesday, May 4, 2011

S&P 500 Trading System Alert (pysche)

I did sign up for the Breakpoint Trades SPY trading system.    Today it almost issued an alert based on closing price.    Long or Short?  I can't say and won't say.   I do bring some ideas and charts from BPT here on occasion, and they are fine with that, but I won't be releasing these swing trade signals as it is against the agreement, and they are too valuable.   I also contribute at BPT, and they have a great live blog. 

For now, I have decided to play these signals using futures.   2 reasons, I have money tied up in other stuff, and want the liquidity, AND Tax Advantage.

Futures or options on index funds get special tax advantage, you pay 15% rate instead of what most people are probably at 28% and higher.   That is huge, because it is all about what you can keep.   The long term capital gains rate applies to 60% of the profits, 40% are still taxed at short term rates. 

True that futures are hunted at night, but /ES is as liquid as it gets....definitely ES still gets hunted, but it really won't matter since this is a buy/sell  on open or close MECHANICAL SYSTEM and so overnight shenanigans won't even come into play.  A veritable Rube Goldberg mechanical system, but mechanical system nevertheless.

CONSULT YOUR TRUSTED TAX ADVISOR.    And if you haven't traded futures, you better be ready for the emotional duress when you see a trade move with you, or against you, and your account changes so quickly your emotion may get the better of you.    Which is exactly the reason for using a mechanical system, to eliminate the emotion and discretionary trading.  

Here is some info I pulled together that will help you start your research:

What is a Section 1256 Contract?
According to IRS publication 550 page 39:
A Section 1256 contract is any:
1. Regulated futures contract
2. Foreign currency contract
3. Non-equity option
And on page 40 under the Non-equity option heading:
Non-equity options include debt options, commodity futures options, currency options, and broad-based stock index options. A broad-based stock index is based upon the value of a group of diversified stocks or securities (such as the Standard and Poor's 500 index).
Good aspects of Section 1256 contracts is
  1. 60% of the capital gain or loss from Section 1256 Contracts is deemed to be long-term capital gain or loss and 40% is deemed to be short-term capital gain or loss. What this means is a more favorable tax treatment of 60% of your gains.
  2. If you have a loss, you can do a "carry backwards" which might be really good for you, it all depends, this is advanced.
  3. All assets in the 1256 are marked to market at end of year.   This could simplify record keeping, sometime digging back years to determine a basis (and the IRS is going to get very serious about basis in near term years, they have been pretty easy going on this in the past)
Sign up for BPT membership here.   The 6 month is the best deal, but if you aren't sure, they have a 3 week free membership (not everything is available), or do a 1 month of the real deal. 

Sign up here for basic membership (required for access to SPY trade signup):

Info on the SPY trade system here:   Memberships are limited, don't kick yourself in the butt because you wanted to check it out, but were "too busy", decide now, and then choose to act or choose not to act.   Don't miss out because of apathy.


  1. 40 for basic membership, 60 for the SPT trade signals, per month. try at least the basic membership, convince yourself o f quality, but don't take too long

    And thanks for dropping in!!!

  2. If you declare mark to market for trading (must show you are a full time trader) your trading gains (from whatever) are taxed as ordinary income. Just sayin'.

  3. Good point I think, I wonder how that fits in with the 1256...maybe your other trading gains (even the long term) may be taxed as ordinary income.

    For me, nothing held over 1 year anyway. I have tended to sell everything before New Year to simplify record keeping. But good point, consult your trusted tax adviser.


Insightful and Useful Comment!