Market Movements

^{*Weekly Return is calculated as market open of the previous Wednesday, to market close this Tuesday (yesterday); Current Level is Tuesday’s (yesterday’s) close.}

Weekly Rollout

Markets seem to be on rocky footing this week. Powell reminded everyone that stocks are “fairly highly valued” and that there’s “no risk-free path” between cooling inflation and keeping jobs steady. Add in the latest government shutdown standoff, and traders are stumbling through an uneven landscape of political and policy potholes. Tech lagged early in the week, but Apple powered higher on iPhone 17 demand, showing that a single upgrade cycle can still smooth out some of the market’s bumps.

And if the human side of markets weren’t unpredictable enough, robots are now in the mix. A journalist gave GPT-5 $500 to invest, and instead of hiding in safe ETFs, the AI piled into these securities. Not exactly risk-averse. Between Powell’s warnings, shutdown drama, and AI-driven stock picking, things could flip-flop faster than the status of Jimmy Kimmel’s show.

“Good-To-Know’s”

Take an investor in the 32% tax bracket. If they flip a stock in 6 months for a $10,000 gain, the IRS takes $3,200. But if they’d held for 13 months, the long-term rate might only be 15%—a $1,500 tax bill instead. Same stock, same gain, but nearly half the tax. This is huge.

The rule is simple, but the impact is significant. Understanding this timeline helps traders decide when it’s worth holding a position longer, or when the flexibility of short-term trading outweighs the tax hit. This is Uncle Sam’s way of nudging you toward patience and becoming an “investor” instead of a “speculator.”

Compare the Rates Below:

Long-Term Capital Gains Rates

Short-Term Capital Gains (Ordinary) Rates

Quote(s) I Like

Thought Throttle

Whether you like it or not, the taxman cometh.

But the good news is that there are ways to lessen the bite of taxes on your portfolio. There is a vast sea of financial planners and CPAs/Accountants that focus on tax efficiency, helping people avoid or reduce taxes.

Clearly, it’s a valuable skill to understand. From tax-advantaged accounts tailored to your situation to strategies that make your investments more tax-efficient, knowing the basics can save you both headaches and heartache when April rolls around.

First things first, we need to understand how taxes actually work on investments. As you probably know, stocks—and most assets that matter—are taxed when you sell.

For example, if you buy shares of XYZ at $50 and the stock increases to $100, you have an unrealized gain of $50. You do not pay taxes on this…yet. Once you sell the stock at $100, you’re taxed on this $50 gain, not the full sale price of $100.

If you held for a year or less, that’s a short-term capital gain, taxed at your ordinary income rate (usually higher). But if you stayed invested for at least a year and a day, it qualifies for the long-term capital gains brackets, which are much more favorable.

See the Good to Know section above for the current rates, along with a deeper breakdown of Short-Term vs Long-Term Capital Gains Rates.

Options bring a twist and nuance to this. Let’s start with puts.

When you sell a put option, there are three possible outcomes, each with its own tax treatment. If you’re assigned and purchase the shares, the premium received reduces your cost basis. Using XYZ again, if you sold a put, collected $2 in premium, and were assigned, your adjusted cost basis would drop to $48.

If the option expires worthless, the premium you collected is taxed as a short-term capital gain (at your ordinary income rate). This is the case even if the option you sold was for a contract that expired in over a year. This is because the IRS views option writing as generating short-term income on an obligation, not a long-term investment in a capital asset, regardless of the contract’s duration.

Likewise, if you buy to close the option, any profit is also a short-term capital gain. If you sold a put and received $2.00 in premium, and then purchased the contract back to close the trade a month later for $1.50, you would pay short-term capital gains taxes on the $0.50 gain. Again, it is short-term, no matter the actual holding period or duration in these circumstances.

Covered calls work the same way.

If the option is closed early for a gain, or if the option expires worthless, it is taxed at short-term capital gains rates, regardless of the holding period or the duration. Not cool.

If a covered call you sold is assigned, the premium you collected gets added to the sale price of the stock. Back to XYZ, say you were assigned on a $50 put (basis adjusted to $48), and then later sold a covered call at a $100 strike for $3. If that call is exercised, your total taxable gain would be $55. This is calculated as the $100 sale price + $3 premium – $48 cost basis.

So, are there ways to lessen our tax bill? Yes, let’s touch on some ideas, high level:

• Use Tax-Advantaged Accounts – Trading options inside IRAs or 401(k)s shields you from yearly short-term tax hits. A cash-secured put or covered call in a Roth can compound tax-free if rules are met, keeping more of your premium income.

• Offset Gains with Losses – Losing trades can lower your tax bill. If you booked $500 selling a CSP but closed another for a $300 loss, the IRS only taxes you on the $200 net gain. Losses soften the sting of profitable trades. Be careful not to aim for losses, however.

• Harvest Losses at Year-End – Piggybacking off of the previous bullet, closing losers in December is a common strategy to lock in losses that offset winners. It’s a way to turn red trades into tax savings and clean up your options book before the new year. Talk to a financial professional, as this can become very complex, especially when dealing with options.

• Hold for the Long Term – Patience can pay off for buyers. If you purchase a LEAP call and hold it over a year, the profit may qualify for long-term capital gains rates—much better than ordinary income.

• Mind Your Frequency – Constantly flipping short-dated puts and calls in a taxable account racks up short-term gains. Fewer, better trades—or shifting high-frequency strategies to an IRA—can mean more after-tax profit.

These are good to know, but you will want to speak with a financial professional and/or tax professional for information and recommendations tailored to your specific situation.

At the end of the day, the IRS can be as much a player in your trades as the market itself. Just a little calculated action can ensure that you keep more of what you earn.

Trade Mechanics

In this example, let’s look at a cash-secured put on NVIDIA (NVDA). After a ~3% drop today, put premiums are elevated, creating an attractive setup for option sellers? Time will tell. But for now, we’ll focus on what a trade would look like using the ~25 delta put expiring October 31st, 2025 (38 DTE).

The trade offers a healthy 2.20% return in just 38 days, which annualizes to about 23.2%. With the stock pulling back ~3% today, sellers are being paid a premium to step in as potential buyers, while still getting a ~9.5% discount if assigned at $161.45.

As always, there is the risk that NVDA continues sliding below $165. For some, that’s an opportunity to keep accumulating NVIDIA stock at a discount during a dip. For others, the volatility may be too sharp to stomach.

Getting paid while waiting for a price you’d be comfortable owning shares at. This is the beauty and the power of selling Cash-Secured Puts.

This is for educational purposes only—not a trade recommendation. Remember to always do your own due diligence and consult a financial advisor before making investment decisions.

Throttle Q&A

Options Summarized:

What Are The Different Tax Buckets to Consider?

There are three main tax buckets: taxable, tax-deferred, and tax-free.

Taxable accounts (like regular brokerage accounts) are flexible but require you to pay taxes on gains, dividends, and interest every year.

Tax-deferred accounts (like Traditional IRAs or 401(k)s) let your investments grow without annual taxes, but you’ll pay income tax when you withdraw the funds in retirement.

Tax-free accounts, such as Roth IRAs, are funded with after-tax dollars and grow completely tax-free. Withdrawals in retirement are also tax-free, if the conditions are met.

All three can play a valuable role in a well-rounded strategy. A qualified financial advisor can help you decide how to best use each based on your goals and income.

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Disclaimer

The information provided in this newsletter is sourced from reliable channels; however, we cannot guarantee its accuracy. The opinions expressed in this newsletter are solely those of the editorial team, contributors, or third-party sources and may change without prior notice. These views do not necessarily reflect those of the firm as a whole. The content may become outdated, and there is no obligation to update it.

This newsletter is for informational purposes only and does not constitute personal investment advice. It is not intended to address your specific financial situation and should not be construed as legal, financial, tax, or accounting advice, or as a recommendation to buy, sell, or hold any securities. No recommendation is made regarding the suitability of any investment for a particular individual or group. Past performance is not indicative of future results.

Options come with inherent risks. We strongly advise you to consult with a financial advisor before making any investment decisions, including determining whether any proposed investment aligns with your personal financial needs.