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STOCK LOAN INFO

Generating Cash Now

If one of your primary objectives in
diversification is to realize some liquidity from your investment, several options are available.

• Sell the Stock

This may be the most straightforward
solution, although it can bring on a
potentially large tax liability. You will

have to pay a federal capital gains tax
of 15% on any appreciation of shares
held for more than one year, and pay

at your marginal income tax rate for
shares held less than one year. You
would also be subject to a state tax

(which varies from state to state) on
this transaction. Since you may have
acquired these shares through options

grants or perhaps from a public
company buyout of your own firm, the
cost basis tends to be extremely low.
However, there may be restrictions on

values for the position and makes it

possible to use as collateral for a loan.
You may also be able to generate cash
to meet any needs you have for income

up to 90% of the put strike, with certain limitations.

“Many investors like the protection
afforded by the purchase of a put option
but do not wish to pay the upfront
premium required,” observes Gale
Herzing, Managing Director of Equity
Derivatives at UBS Securities LLC. “If
willing to forego appreciation above a
certain level, the investor can sell a call
option to generate premium income.
When the cost of purchasing a put
option is fully funded by selling a call
option, the transaction is referred to as a
zero-premium collar. It’s important to
keep in mind that by doing this you are
giving up any subsequent appreciation in
the position above the strike price of the
call option,” acknowledges Herzing.


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