which is hte most appropriate strategy and why Client objectives: Defer the realization of capital gains and the associated capital gains taxes. Significantly reduce the downside risk associated with their holding of Pitt stock, but preserve some upside potential. Do not use leverage in the portfolio. Following four strategies for achieving the goals of the Ingrams: • Outright sale • Equity collar • Exchange fund • Completion portfolio
Equity collar from what I remember.
Outright sale will have current tax Exchange fund, doesn’t seem like they want to diversify their portfolio, but might need more info. Completion portfolio. Most likely they don’t have enough other assets to do completion porfolio since it’s a concentrated position. Equity collar: Does: Significantly reduce the downside risk associated with their holding of Pitt stock, but preserve some upside potential. However most it is kinda a type of leveraging, since in reality options are just leveraged stock position.
If they don’t want to diversify equity collar for sure. If they want to diversify then Exchange fund.
I agree, exchange fund doesn’t provide downside protection though.
In the exhange fund will they be exchanging the entire position? will they have any upside using exchange fund
But it does significiantly reduce the downside risk since for the specific stock, since he is more divsersify. His assets are pooled into Exchange Fund, so his exposure risk exposure to Pitt is a lot lower than if he own the concentration of Pitt.
In exchange fung he has upside, because he holds pool of diversified assets. I agree that it significantly reduces downside risk. However, it does not provide downside protection like put option (below a given level of stike price, your asset are safe).