Retirement & Financial Planning Report

If you have a large stock market gain you may be unwilling to sell and pay capital gains tax. But what if you want to get your hands on some money? You can sell an “out-of-the-money covered call” on your shares. If your stock is selling at $100, for example, you might sell an option to buy your shares at $105 or $110, within a given time period. The sales proceeds will put cash in your pocket without triggering your gain on the underlying stock. What if your stock goes over the exercise price? Your shares will be called away, triggering the long-term gain on the stock. If that seems likely, you can buy back the call option, incurring a capital loss, while keeping your appreciated position intact. In fact, you can sell some of your appreciated shares, using the capital loss from the call to offset the gain on the stock sale. Again, you won’t owe any tax.