Using options for tax management

Investors sometimes use options to change portfolio allocations without actually buying or selling the underlying security. For example, an investor may own 100 shares of Reliance and be liable for a large unrealized capital gain. Since they do not wish to trigger a chargeable event, Shareholders can use options to de-risk the underlying security without actually selling it.12 In the above case, the only cost to the Shareholder of using this strategy is the cost of the options contract itself .