It’s time to say goodbye to 2021, which means it’s time to do a year-end review of your portfolio to identify losses and gains. Try to understand what went wrong and what went right—and why—and recalculate for 2022.
If possible, take advantage of sour investments that may have long-term merit. If you bought a stock at a higher price, it may make sense from a tax perspective to take a loss against other gains and reinvest the investment at a lower price, a strategy known as “repetition.” .
Peloton Interactive (ticker: PTON), which rose to prominence during the pandemic and has since fallen to ashes of companies troubled by the market’s rapid peak, may just fit the bill.
Peloton, as everyone knows, makes exercise bikes with video monitors that enable people to take classes with world-class instructors from their homes. The company enjoyed extraordinary success during the pandemic, only to be undone by the manufacturing crisis and eventually the COVID vaccine, which enabled gyms to reopen.
Yet Peloton continues to have a cult-like following. I like trainers cody rigsby Has become a celebrity. And the company just rolled out a big trade-in program: People who buy new bikes can swap out their old bikes for $700 off and accessories.
Investors who bought Peloton at higher prices could double up on the stock to reset the cost basis and position for a potential recovery. The deadline for buying new stock to capture this year’s losses is November 30. After that date, there will not be enough time to escape the Internal Revenue Service’s wash-sale rule, which prohibits loss deductions by investors buying similar holdings. Within 30 days before or after sale.
Peloton investors can buy an equal number of shares and hold them for 30 days. On the 31st day, the original tax lot of Peloton shares—the stock you bought at higher prices—can be sold. Anyone who does this should be able to claim damages on their tax return. Consult your tax advisor.
Doubling up with stocks is the usual method, says Michael Schwartz, Oppenheimer’s chief options strategist, preferring to use call options to limit risk and expense. The mechanics of trading are similar, but options are less expensive than stocks.
Schwartz recently told clients who bought Peloton near its high price doubled with a March $45 call that cost roughly $6.60 when the stock was at $42.97. On day 31, the original tax lot could still be sold, and investors would have the same number of calls. (Each call represents 100 shares; for example, you would need 10 calls to cover 1,000 shares.)
Again, the time frame is important. Should the stock be sold before the 30-day period expires, investors would be in violation of the wash-sell rule and the IRS would not allow the loss, Schwartz advised.
Over the past 52 weeks, the peloton has ranged from $43.13 to $171.09.
Some would wonder why Schwartz chose the March call, which expires in about 120 days. The answer is simple. Peloton is a “show me, don’t tell me” company. The management team has arguably lost investor confidence as the stock has fallen from all-time highs. Also, the company recently said it would not need to raise capital, only to say later that it would sell more stock to raise capital.
Still, the Peloton cult is a valuable asset, even if it’s hard to value by traditional metrics. The double-up business expresses an idea that the company’s management team will rise to the occasion and try to be as good as the coaches and the community. If not, well, the cost basis was reset, a tax benefit was realized, and the risk-and-return journey begins anew.
Steven M. Sears is the president and chief operating officer of Options Solutions, a specialty asset-management firm. Neither he nor the firm has a position in the options or underlying securities mentioned in this column.
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