As the end of 2013 nears, I am pleasantly surprised with the rise in the stock market and my company stock. At the same time, I am worried about a significant drop in the stock market and my company stock over the next two months. However, for tax efficiency reasons, I am reluctant to sell any more stock in 2013 and want to wait until 2104 to make any sales in our taxable accounts. The main risk is that the stock market and my company stock declines significantly before 2014.
At this point, my plan is to buy protective puts on my company stock that expire in early January 2014. I will start buying the puts in mid-December at a target price of $0.50 per share with $2 maximum of downside protection. Thus, I will be able to protect my profits against a loss greater than $2.50 per share. If the stock should continue rising, then I will only lose $0.50 per share for the protection.
For me, a protective put strategy is worthwhile insurance since I believe a 10% or greater correction is likely in the next few months.
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This is not financial or investing advice. Please consult a professional advisor.
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1 comment:
Your readers may want to be aware that under certain scenarios, buying a protective put on an existing underlying position can trigger complex tax situations. Anyone considering such transactions should learn the tax rules or consult a tax advisor who understands them.
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