Monday, December 22, 2014

Final Status of the Protective Put

Recall that I was going to use a "Protective Put" option strategy in the rebalancing of my portfolio back in the Summer. The reason was that I had excess small cap stocks (ETF) in my portfolio and I did not want to sell until 2015 for tax reasons. The Protective Put allowed me to protect against the downside that small cap stocks decline before I sell in 2015, effectively allowing me to sell in 2014 without actually selling.

Here is the final status of the strategy, which seems to have worked. The small cap ETF has gone up (9/16), then down (10/10) then up (12/22) with the market, the PUT first declined in value, then rose above the purchase price, then expired worthless on 12/20. Net of all this, I am down $212, but I had insurance against the ETF falling in the meantime.  The only risk left is that the ETF goes down in the last few trading days of 2014, since the ETF expired on 12/20/14 and I will sell on 1/2/2015. 

Protective PUT for Vanguard Small Cap ETF (VB)
Before Option PurchaseOption Purchase 8/159/6/201410/10/2014Option expires 12/22/2014
200 shares VB$22,712.00$22,702.00$23,354.00$21,098.00$23,300.00
200 PUT options (Dec2014)$0.00$800.00$500.00$1,388.00$0.00
Cash$0.00-$800.00-$800.00-$800.00-$800.00
Total$22,712.00$22,702.00$23,054.00$21,686.00$22,500.00
Note also that the $800 price of the options is tax deductible as a short term capital loss so Uncle Sam helped with the strategy.

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