Can I buy puts in the open market to hedge unexercised ISOs?
January 29, 2007
Date: Tue, 19 Dec 2006
Great site loaded with helpful info!
I am interested in the viability of buying puts in the open market to hedge unexercised ISOs. Consequences?
Date: Fri, 29 Dec 2006
When you buy a put as an offsetting position to stock, short sale rules apply that erase the holding period when the stock hasn’t met the holding period requirements for long-term capital gains. (Internal Revenue Code Section 1233(b), Revenue Ruling 78-182.) Therefore, offsetting puts should be used carefully, with the awareness that the holding period “clock” for the stock doesn’t start until the put is eliminated.
An alternative approach is to buy a put for a stock that has a similar stock price movement to the ISO stock. An example might be to buy a put for AMD stock as a hedge for Intel ISO stock.
Employees should also check for “insider” restrictions prohibiting them from getting hedge positions against company stock.