I am a US citizen who lives in Canada; I file and pay taxes in both countries.
There is no estate tax in Canada but on one’s death, one’s estate pays tax on unrealized capital gains and the cost basis is stepped-up (as if all holdings had been sold).
Also, due to recent changes in tax law in Canada, the tax rate is 27% on the first CAD$250K realized each year; above this threshold, the tax rate is 40%.
So, each year I am going to sell some stocks and ETFs to realize CAD$250K of capital gain.
Since I am committed to sell some shares (each year) and I would be happy to do it at today’s price, is there a way to use options to increase (a little bit) my profit?
For instance, I own 2,000 shares of QQQ bought in the mid 2000s (after the dot.com crash).
My cost basis is US$40 per share; today’s price is US$503.
I could sell 100 shares today and realize $46K of capital gain.
Alternatively, I could sell (covered) call with an expiration date on December 20, 2024.
If I select the lowest possible strike price ($130), I am almost certain that the call will be assigned.
Adding the strike price ($130) and the option premium ($375), I would collect $505 per share and earn an extra $2 per share (i.e., not a lot).
If I select a “more reasonable” but still low strike price ($400), it is still likely that the call will be assigned.
Adding the strike price ($400) and the premium ($114), I would collect $514 per share and earn an extra $11 per share (i.e., better than $2).
Is there a smarter (and more profitable) way I could use options given that I am committed to sell some shares to realize some capital gains before the end of the calendar year?
There is no estate tax in Canada but on one’s death, one’s estate pays tax on unrealized capital gains and the cost basis is stepped-up (as if all holdings had been sold).
Also, due to recent changes in tax law in Canada, the tax rate is 27% on the first CAD$250K realized each year; above this threshold, the tax rate is 40%.
So, each year I am going to sell some stocks and ETFs to realize CAD$250K of capital gain.
Since I am committed to sell some shares (each year) and I would be happy to do it at today’s price, is there a way to use options to increase (a little bit) my profit?
For instance, I own 2,000 shares of QQQ bought in the mid 2000s (after the dot.com crash).
My cost basis is US$40 per share; today’s price is US$503.
I could sell 100 shares today and realize $46K of capital gain.
Alternatively, I could sell (covered) call with an expiration date on December 20, 2024.
If I select the lowest possible strike price ($130), I am almost certain that the call will be assigned.
Adding the strike price ($130) and the option premium ($375), I would collect $505 per share and earn an extra $2 per share (i.e., not a lot).
If I select a “more reasonable” but still low strike price ($400), it is still likely that the call will be assigned.
Adding the strike price ($400) and the premium ($114), I would collect $514 per share and earn an extra $11 per share (i.e., better than $2).
Is there a smarter (and more profitable) way I could use options given that I am committed to sell some shares to realize some capital gains before the end of the calendar year?
Statistics: Posted by BenfromToronto — Thu Jul 11, 2024 12:58 am — Replies 1 — Views 173