The traditional technique to lock in gains was to
short against the box, i.e. to hedge a long position
by an identical short position. However, the new tax laws
interpret such positions as a ''constructive sale,'' so
that this approach can no longer be used, except under
limited circumstances analyzed carefully in Barron's
2 or 3 weeks ago.
As a relacement, some persons have suggested using
a ''collar'' formed by bracketing your long position
with two puts and calls positions. You must have some
market exposure to avoid the ''constructive sale'' rule.
The last technique would be to construct a real hedge
position by pairing LOR with a security likely to
move in the same direction. The most obvious choice would
be to pair LOR with GSTRF, and hedge your long LOR position
by a short GSTRF position. However, I must admit I hate
this suggestion, since both stocks are likely to do very
well in the coming 5 years. You could also think of an IRIDF
short position. However, just to get our friend Angelo
excited, my suggestion would be to hedge your long LOR
position by a short ORBI position.
Incidentally, I admire the guts that led you to put all
your assets in LOR. In retrospect, it was a fantastic move.
However, why cut your gains at $35? Five or 6 years from
now, LOR will be worth significantly more than that. You
should really stick to your guns and let your profits ride,
IMHO.
Best wishes,
Bernad Levy |
