Maximizing value and minimizing tax burden.
David's $500,000 portfolio is heavily concentrated in his company's stock due to RSUs. The potential acquisition triggers a significant tax event on vesting, eroding a substantial portion of his wealth if not strategically managed. He wants to participate in the potential upside of the acquiring company's stock, but minimizing risk and tax implications are paramount.
By using the Call Option Calculator, we explored various strategies for David to leverage a portion of his RSU windfall to purchase call options on the acquiring company's stock. This allows him to participate in potential future gains with limited downside risk and a significantly lower initial capital outlay compared to purchasing the stock outright. We also utilized the Tax Equivalent Yield calculator to understand after-tax returns of various investment options post-acquisition, projecting an increase of 15% in his overall portfolio return after tax.
The Call Option Calculator allows for inputting strike price, current stock price, time to expiration, and volatility to determine the potential profitability of a call option strategy. The Tax Equivalent Yield Calculator compares taxable and tax-advantaged investments, showing David the true after-tax return he could expect.
$150,000 potential upside capture while limiting downside risk to $25,000 premium paid for call options, alongside $30,000 in tax optimization through strategic RSU management.
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