Hi MMM Readers,
Happy new year!
My family is very lucky: we have been investing in a particular fruit company over a period of years, and now our stock is highly appreciated, representing almost all of our portfolio. We also have a good income which puts us in a high tax bracket, but we are looking at FIRE in 2016, where we should be in a low bracket. We would like to reduce the risk of owning this stock (e.g. by diversifying to an index fund), but selling today would realize mucho capital gains, which we would rather defer until 2016. How can we do that?
One strategy I found is an options trade called a "collar." Say our fruit stock is at $100. We buy put options at $85, and sell call options at $115, both to expire in 2016. This limits our losses to 15%, and costs nothing out of pocket. The downside is that it limits our gains to "only" 15%, and if either option is exercised we'll be forced to sell.
Is a collar a good idea for me, or have I blasted off into Enron land? I have no experience with options trading yet.
Has anyone else been in a similar situation? What did you do?
The grubby details: we have $1.15 million in stock, ~65% of which is long term capital gains. We expect to face a combined capital gains tax rate of 34% (20% federal, 10.3% state, 3.8% Medicare) in 2015.
Thank you for your thoughts and experiences, and best of luck to you, yours, and your mustaches in 2015.