Whatever method is used, ranging from
synthetic forward, as proposed, to more simply rolling forever "parallel" futures, in purely abstract terms, one will just be executing orders on 2 "legs".
The straightforward idea strongly pushed by Des (if I understood correctly his professional jargon
) is to use a "synthetic" instrument (that is "artificially" created but with the same or inverse dynamics of a chosen, "real", instrument).
Certainly an intelligent solution, and avoids many of the "strangle" controversial aspects discussed here.
If one takes
any instrument, say
I (that
has options, but it is
not an option itself), one could build either:
the synthetic "
inverse of I" putting together a
\_ + --\ (long atm put and short atm call)
or the synthetic "
clone of I":
_/ + /-- (long atm call and short atm put)
and then start either with a
buy/buy, in the first case (I + inverse of I),
and with a
buy/sell or
sell/buy in the second case (I + clone of I).
Another way (which personally I would prefer, in practice, if I had to do it for myself) is to take a
pair of actual instruments, say
I1 and
I2, which trade almost "parallel", like 2 futures with close expiration dates, like in this screenshot below
(these are 2 different expiry futures, one started long the other short):
BRR FUT 20230127 CME 5 CME CF Bitcoin Reference Rate [BTCF3, 576721265, mult: 5]
BRR FUT 20221230 CME 5 CME CF Bitcoin Reference Rate [BTCZ2, 462304879, mult: 5]
The
net PnL of the two legs will have to
add up ideally to 0 (or a negligible loss, obviously due to transactions/spread), at any time.
In order to be able to accumulate "losses" in one taxed accounting location and, then, eventually take the corresponding profits in "Panama", it will be necessary to use a "
specific lot" accounting method, in order to "match" suitably the orders, to selectively report the "realized losses".
It will also be necessary that the instruments have high volatility (high range) because otherwise, the trading activity will gradually reduce and stop because, in order to create new "
matches" of orders with a "
loss", it is necessary to continuously expand the range of price traded. In fact, the continuous close and reopening of the positions, to "realize" the losses, will require higher buy orders and lower sell orders.
In this case, one can either create new pairs of instruments when necessary or go to Panama to close the "unrealized" and get the profit (ideally almost equal to the sum of all the losses reported.)
In this way, tons of "losses" could be easily created in just a few days, or months (depending on the instruments chosen and the size of orders used).
[Of course, it works on the paper until some tax officers, more astute than others, will start wondering how can it be that one reports
millions in losses in an account where the
net balance, net of possible withdrawals, shows
little or no loss at all . (But I guess one could use two or more accounts...)]
[btw, the procedure would also work similarly and inversely, to create millions of artificial "gains" instead of "losses"...]
