Monday, September 8, 2014

Protective Put Strategy Status

Recall that I was going to use a "Protective Put" option strategy in the rebalancing of my portfolio.  The reason was that I had excess small cap stocks (ETF) in my portfolio and I did not want to sell until next year for tax reasons.  The Protective Put allowed me to protect against the downside that small cap stocks decline before I sell next year, effectively allowing me to sell this year without actually selling.

Here is the status of the strategy, which seems to be working.  The small cap ETF has gone up, the PUT has declined in value, but I also got the capital gain from the original ETF shares, so I am up, but not as much as I would be if I had not bought the PUT.

Protective PUT for Vanguard Small Cap ETF (VB)
Before Option PurchaseOption Purchase 8/15Now 9/6
200 shares VB$22,712.00$22,702.00$23,354.00
200 PUT options (Dec2014)$0.00$800.00$500.00
Cash$0.00-$800.00-$800.00
Total$22,712.00$22,702.00$23,054.00

Note also that the loss on the PUT when I sell it is tax deductible.

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