25. An End-of-Year Tax Strategy

Suppose you own a stock that has made a nice gain during the year, but you are concerned about a substantial pullback near the end of the year. Understandably, you are reluctant to sell your stock and take your profit before January 1 because of the tax implications in the current year. You would like to avoid having to pay tax on that nice profit when the next April 15 arrives.

The IRS regulations make it impossible for you to install any kind of complete hedge of your stock profit that would allow you to defer a tax payment into the next year. There is, however, a way to use options to provide some degree of cost-free protection of your profit without creating a taxable transaction. This chapter demonstrates ...

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