If you are dealing with significant problems, i.e. $1 million plus, you should investigate the "Monetization" and "Forward Selling" or "Equity Collar" strategies that several of the large bank-owned Canadian brokerages (and others) offer. These allow you to turn your position (or part of it) into cash, lock in your gain, and avoid (defer) paying the capital gains (e.g. in a forward contract that is cash-settled, you are not actually deemed to sell your shares because the contract itself is usually settled for cash prior to maturity. If the stock goes down, the counter party to the forward contract actually owes you *more* money on settlement. If it goes up, you owe them more money. But in the meantime you retained ownership (and voting rights) to the underlying stock, so no capital gains, and no "risk" in terms of being short the stock as it appreciates. In practice, you would probably roll the position at settlement.)
Boy that is a mouthful. It is actually straight forward but generally requires more than a paragraph to explain. In any event, it is available to private investors.
Restrictions include borrowability of the stock (the counter party hedges by selling the stock short, and must be a able to borrow to short), any restrictions on selling (are you an insider), and size (generally for $million + positions, although you might be able to consider at $500,000. Ask your broker.)
The monetization aspect is the bank lending you money based on the forward sale. Yeah, there is interest to pay, but it is usually at prime, and it is deductible as investment expense. Finally, it can be structured as a zero coupon loan, so the interest payments just compound. You don't have to come up with cash to service the loan.
In the collar, you "collar" your gains by going short a call, and long a put (this is usually "zero cost", as the proceeds from the call sale pay for the put buy).
Anyway, these strategies are tailor made for the dilemma that prompted this thread. |
