Swaps For Pre-1984 Stock
- Topics:
- Commercial Lending
- Tags:
- Finance,
- Taxes,
- Strike Price,
- Stock,
- Investor,
- Investment,
- Free Trade,
- Financial Planning,
- Financial Accounting,
- Twenty-First Securities
- Source:
- Twenty-First Securities
FREE Registration is required
Overview: Investors with appreciated securities often wish to hedge - either to protect their gains and try to gather additional profits or to diversify without having to pay a large capital gains tax. An analysis shows that for stock purchased before 1984, the best hedge involves a swap with an embedded collar. The two other possible hedges - options-based collars and variable forward contracts – produce less favorable tax consequences. Options-based collars involve the purchase of puts and the sale of calls. With this strategy, the investor limits the potential for losses below the put strike price or profits above the call strike price. In addition to hedging, many investors with appreciated stock wish to withdraw money from their positions. Such investors may choose to monetize, or borrow against, their appreciated stock. Thus, Options-based collars and variable forwards incur approximately the same treatment if the stock declines, but they incur harsher treatment if the stock gains value. For this reason, swaps are clearly the preferred tool for hedging pre-1984 equity positions.
(Is this item miscategorized? Does it need more tags? Let us know.)
Format: HTML | Date: Jun 2003 | Pages: 1
People who downloaded this item also downloaded
 |
Tax Efficiency In Corporate Cash Management |
|
New Moves For Concentrated Stock Positions |
|
Measuring Risk |
|
What Is Hedging? Why Do Companies Hedge? |
|
Sales Revenue |
