Justin owns 400 shares of ORNG stock which he bought 10 months ago at $20 per share and has now risen to $35 per share. He is afraid the stock price will fall before he has owned it for a full year, but wants to postpone realizing profits on the stock for several months, when it will become a long-term rather than short-term gain. He can protect his profit and avoid the short- term capital gains rate by
A) writing covered calls.
B) writing puts.
C) buying puts.
D) buying calls.

Question

Quizplus · Accepted Answer

Buying puts allows Justin to protect his profit by giving him the right to sell his shares at a predetermined price, even if the stock price falls, without requiring him to sell his shares immediately. This strategy does not trigger a taxable event and thus postpones realizing profits until he decides to sell the shares, potentially qualifying for long-term capital gains treatment.

Justin Owns 400 Shares of ORNG Stock Which He Bought