Do Your Betting With Your Broker

If you go on Robinhood you can bet on stocks. You can make as many bets as you want: You can just buy an index fund and hold it forever, but if you’d like more excitement you can buy a bunch of single-stock options every morning and sell them in the afternoon. If you make a lot of bets, you will win some and lose some: Even professional trading firms with very good records might win, you know, 53% of their bets. You’d be quite happy with 51%. If you make 1,000 trades a year, make $10,000 each on 510 of them (51%) and lose $10,000 each on the other 490, (1) that’s fine work and (2) you’re up $200,000 for the year.

And then you have to pay taxes. Intuitively, you have $200,000 of income from your trading; if your tax rate on this money is 37%, you pay $74,000 and keep $126,000. More technically, what you have is $5.1 million of short-term capital gains and $4.9 million of short-term capital losses, which you can use to offset the gains.1 So $200,000 of net short-term capital gains, but when you fill out the form, you’ll list both the $5.1 million of gross gains and the $4.9 million of offsetting losses.