With the end of the year approaching, I need to be mindful of my capital gains situation. Since some of my market hedges realized capital losses earlier in 2011, prudence dictates the need to realize capital gains* this week before the year closes. Today I bought to cover my short position on PHH.
PHH provides mortgage production and servicing along with fleet (vehicle) management. Last November, I presented my thesis for shorting this stock, citing problems in the mortgage market, macroeconomic pessimism, and overvaluation. Along with these issues that pushed the stock down over the past year, the CFO resigned in the spring, and S&P downgraded PHH’s debt last week. The stock fell from $20.90 to today’s price of $10.55.
| 11/24/2010 | PHH | short | 100 | 20.9 | $ 2,080.01 |
| 12/27/2011 | PHH | buy to cover | 100 | 10.55 | $ (1,063.95) |
| $ 1,016.06 |
*All short positions generate short-term capital gains. The logic is that the a capital gain is based on how long the taxpayer owns the stock, not necessarily how long the taxpayer borrows the stock. Ownership of the stock takes place the same day the position is covered. Hence, even though I borrowed the stock for more than a year, the stock was owned for only one calendar day and is therefore a short-term taxable gain.
