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Greeting Money Gurus, I would like to share the following strategy with you for your comments, feedback and suggestions...

The TFSA is a great vehicle to invest tax free, however not all trades results in profits and when you experience a loss in a TFSA it's extra painful as you also loose your contribution room.

The following strategy aims to minimize that:
Let's assume you have a TFSA and a Margin Account. For example, instead of buying a stock you would do a Synthetic Long options trade BUT, you would hold the PUT portion in the Margin account (Sell Put) and the CALL portion in the TFSA (Buy Call)

Let's examine 3 scenarios:
1. Stock goes sharply down (Loss)
2. Stock remains flat (Neutral)
3. Stock goes sharply up (Profit)

Results:
1. The loss in TFSA is limited to the premium paid and the majority of the loss is experienced in the margin account (where it's tax deductible)
2. You will have a little loss in TFSA (limited to the premium paid), and will have a small profit in the margin account (Premium received)
3. You have a big profit in TFSA (tax free) and a small profit in the Margin account (Premium received)

Conclusion:
1. Big profits are 'Pushed' to TFSA while big losses are experienced in the Margin account and are tax deductible.
2. You can do the same strategy with synthetic SHORT, (Buy PUT in TFSA and Sell CALL in Margin)

Thoughts?
 

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Let's assume you have a TFSA and a Margin Account. For example, instead of buying a stock you would do a Synthetic Long options trade BUT, you would hold the PUT portion in the Margin account (Sell Put) and the CALL portion in the TFSA (Buy Call)

Let's examine 3 scenarios:
1. Stock goes sharply down (Loss)
2. Stock remains flat (Neutral)
3. Stock goes sharply up (Profit)



you're right that capital gains are the summa of TFSA investing but how to obtain those gains in the tax-free is the big challenge.

IMHO this option strategy is one of those that - like buying protective puts - look more alluring on paper than they will likely work out in harsh reality.

first negative is double-headed. Numero uno: the strategy requires a continuing bull market, so that the long call sides in the TFSA can mostly appreciate. However the continuation of the now-eight-year-long bull saga is moot. As you point out yourself, a flat-lining or declining market will trigger losses of the premiums that were paid to buy those long calls in the TFSA.

gains from selling puts in the margin account might console, but overall what could result could be a nightmare scenario: constant erosion of capital in the TFSA plus unfortunate exercise of now-ITM puts in the margin account.

numero due: back to assuming the bull market will continue, i'm left wondering why anyone would try a diagonal strategy spread between TFSA & margin accounts? no hedging is going on, although hedging is a primary reason for putting on a paired option strategy in the first place.

in other words, if one is bullish, why not merely buy calls in the TFSA? why bother with any contiguous put strategy in the margin?

& if one is not bullish, then why buy calls anywhere, other than to cover a naked short?

all this being said, i'm one who occasionally runs an option strategy that is split between a registered account & a margin account. Not very often, perhaps once every couple of years. The last one - in AMBA US calls - worked out very well. However, overall I'm not a fan of this strategy.


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