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How is that a tax advantage? If I am not mistaken unless you hold your stocks/ETFs shorter than a year the taxation stays the same. What is the math behind tha
by looping__lui 6y ago
How is that a tax advantage? If I am not mistaken unless you hold your stocks/ETFs shorter than a year the taxation stays the same.
What is the math behind that? I’m really curious because a 10-50% spread on Put options just makes them pretty unattractive imho and more a “gamble” than a real option (pun intended)
- chillacy 6y agoYea as you pointed out the long term capital gains is one area where you might have a tax advantage hedging. Imagine you bought a bunch of stock 11 months ago and you want to capture profits right now, it may be cheaper to buy puts out for 1 month and then sell for as long term capital gains. Puts are of course only one way to hedge, some people hold cash, buy gold/bonds/natural resources, buy VXX, etc. Also the spread varies a lot, options on SPY tend to have tighter spreads than on a random stock, but I've found that submitting a "reasonable" offer (in the middle of the buy/ask prices, in-line with the black-scholes estimate) usually gets filled within the day. Just buying a put without owning the underlying is definitely a risky gamble. But if you own 100 shares of the underlying it becomes a hedge since it limits your downside (at the cost of upside). And if you buy the put and sell a call you can limit any gains and losses to within a narrow band: https://www.investopedia.com/terms/c/collar.asp https://www.investopedia.com/terms/c/collar.asp