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19.In which of the following cases is an asset NOT considered constructively sold?
A.The owner shorts the asset
B.The owner buys an in-the-money put option on the asset
C.The owner shorts a forward contract on the asset
D.The owner shorts a futures contract on the stock
A.The owner shorts the asset
B.The owner buys an in-the-money put option on the asset
C.The owner shorts a forward contract on the asset
D.The owner shorts a futures contract on the stock
Answer: B
Profits on the asset have to be recognized in A, C, and D. The holder of the asset cannot defer recognition of profits with the trades indicated. In the case of B the asset is not considered constructively sold. Buying a deep-in-the-money put option is a way of almost certainly locking in a profit on an asset without triggering an immediate tax liability.
Profits on the asset have to be recognized in A, C, and D. The holder of the asset cannot defer recognition of profits with the trades indicated. In the case of B the asset is not considered constructively sold. Buying a deep-in-the-money put option is a way of almost certainly locking in a profit on an asset without triggering an immediate tax liability.
Flashcard info:
Author: CoboCards-User
Main topic: Finance & Investment
Topic: Derivatives
Published: 27.10.2015