Gain or loss on put 2 gain or loss on put gain or

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Gain or Loss on Put 2. Gain or Loss on Put + Gain or Loss on Call Comparison Sources of Return Pre-Tax After-Tax Stock 1 2* 3 1 2 3 75 29 24 29 17.4 19.2 20.6 100 4 -1 4 2.4 -0.8 0.6 125 -21 -18 -21 -12.6 -14.4 -14.4 *  Ignores cost of financing put hedge Call taxed at 40% Put taxed at 20% Stock taxed at 40% Rebate taxed at 40% Tax Treatment After Tax return on synthetic short  if stock declines  to $75: 13 * .6  = 7.8 +(25-9) * .8 = 12.8     20.6 1010271-Cor-10
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0903270-Col-MBA-18-19 19 Harvesting Capital Losses An investor wants to sell a stock that has a capital loss to offset  a realized gain in the portfolio.  He/she likes the stock and wants  to retain economic exposure to it.  Once the stock is sold, it  cannot be repurchased for 31 days, otherwise a wash sale is  triggered. Prevents taxpayers from selling securities at a loss and re- acquiring “substantially identical” securities within a 30-day  period before or after the loss sale Call options:   Due to a statutory rule, purchasing any call after  realizing a loss by selling a long position violates the wash-sale  rule Put options:   Generally, selling a put after realizing a loss by  selling a long position should not violate the wash-sale rule if it is  not “deep in the money,” although current law is unclear as to  what may constitute “deep in the money” for this purpose Other strategies  include: -  Sell loss stock,  stay in cash for  31 days -  Sell loss stock,  buy substitute  stock Background Wash Sale Options  Strategies 1010271-Cor-10
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0903270-Col-MBA-18-19 20 Significant wealth is created through the  concentration of assets… Why Managing The Risk of  Concentrated Stock is Important Normalized Price (%) INTC MSFT SUNW Time And kept through the diversification of  assets… Normalized Price (%) INTC SUNW MSFT Time 1010271-Cor-10
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0903270-Col-MBA-18-19 21 Why Not Sell Stock To Diversify? Stock is restricted Voting and other non-economic considerations Continue to retain exposure to the stock While economic exposure exists, investor does not have physical  shares to sell Realization of a taxable event Liquidity Investors often sell equities and purchase fixed income assets to modify their risk  profile.  However, there may be extenuating conditions which makes implementing  this strategy difficult, especially with concentrated single stock positions. 1010271-Cor-10
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0903270-Col-MBA-18-19 22 What Is Restricted Stock? Shares that are not freely fungible and have one or more  of the following regulatory limitations: Holding period requirement before any sales and  direct hedging is permitted  Volume, manner of sales and reporting requirements Delivery of prospectus required with sales  (registration rights)
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