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With the VIX “fear index” falling back closer to “normal” levels–it dropped to 21.89 yesterday from 31.12 on December 1–it sure feels like the extreme volatility of the end of November and early December is on the ebb. The move to yesterday’s 21.89 close from December 1 was was a surge of 30% in the CBOE S&P 500 Volatility Index in a week. This move away from panic follows on a jump in the “fear index” in the week from November 24 to December 1 of 67% in the opposite direction.

I’d be surprised if we don’t see another surge in volatility in the rest of December or in January with what promises to be a crazy earnings season, but even if volatility holds at something like today’s level–slightly elevated from the historical averages but in the rough ballpark–don’t forget that volatility has a long tail.

Volatility, in fact, creates volatility. And not least of all in individual stocks.

It works like this.

Say you owned shares of Nvidia (NVDA) that you bought back on January 4, 2021 at $1341.13 a share. And that you held on for the stock’s extraordinary run to $333.76 on November 29. That gave you a gain of 154.5%.

And then, worried about the technology selling in early December, you sold and had the bad luck to sell on December 6, the low in this selling, at $300.37. Makes sense. You wanted to protect your extraordinary profits.

And selling at $300.37 managed to protect most of them–$169.24 a share of gains to be exact. Even with the drop, you were still looking at a gain of 129%.

Not too shabby. And I’m sure you’re thinking of rebuying Nvidia if you can get a “bargain.” Unless you already did and caught the big bounce in the early days of this week. As of noon on December 8, Nvidia was back to $319.76.

But before you buy again, you have to deal with that huge gain in 2021 and its tax consequences. Because you sold to protect your 2021 gains, you turned those paper profits into a realized gain for tax purposes.

So at this point, you or your tax account (and all good professional money managers) are looking at that tax bill and saying, “What do I sell where I can take a loss and offset some of those taxes?

Selling a stock that has dropped recently won’t do the trick if that stock is still up big for 2021. For example, even though Advanced Micro Devices (AMD) dropped from $161.91 a share on November 29 to $144.70 at noon today, December 8, the stock is still up from $92.30 on January 4. Selling Advanced Micro Devices won’t help fix the tax problem created by the volatility of early December. It would in fact make it worse.

Instead you would look to sell a stock that is now trading at a loss to the start of 2021 or whenever you bought your shares. That will give you the tax benefit you seek.

In effect, the volatility of the last couple of weeks has set up a two-tiered volatility response.

Stocks like Nvidia and Advanced Micro Devices or Apple (AAPL) or Palo Alto Networks (PANW) are free to do whatever they’re going to do through the end of the year without any pressure from end of the year tax loss selling.

On the other hand, stocks like Nektar (NKTR)–$17.66 on January 4 and $12.79 at noon on December 8–or ChargePoint Holdings (CHPT)–$36.78 on January 4 and $20.74 at noon on December 8–will have to fight their way to follow the market higher–if we still get something of a yearend rally–against the pressures of tax selling.

Think of those pressures as the long tail of recent downside volatility.

The stocks that make up the most attractive tax loss selling candidates are those where it’s hard to see any upside catalyst for the individual stock in the near term. That, unfortunately, pretty accurately describes Nektar, where perhaps promising data from studies in melanoma, renal cell carcinoma, and bladder cancer aren’t due until the first half of 2022. An investor looking for a tax loss could feel reasonably confident that selling now wouldn’t result in missing a major spike upwards before he or she had a chance to rely in 2022.(That said, you also don’t want to sell on a temporary plunge such as we’re getting on ChargePoint today. I’ll wait for something of a recovery. No reason to take a bigger tax loss than necessary.)

With that said, I’ll be selling Nektar out of my Jubak Picks Portfolio (loss of 68% from my November 13, 2017 buy) and out of my Volatility Portfolio my subscription JubakAM.Con site (33% loss from my August 13, 2019 buy) today. I’ll be writing up this sell in more detail later today.

And I’ll be looking for a few more tax-loss selling recommendations in the next few days.