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August 09, 2016

Concentrated Stock Positions: Considerations and Strategies | Monetize the position

Monetize the position

If you want immediate liquidity, you might be able to use a prepaid variable forward (PVF) agreement . With a PVF, you contract to sell your shares later at a minimum specified price. You receive most of the payment for those shares--typically 80% to 90% of their value--when the agreement is signed. However, you are not obligated to turn over the shares or pay taxes on the sale until the PVF's maturity date, which might be years in the future. When that date is reached, you must either settle the agreement by making a cash payment, or turn over the appropriate number of shares, which will vary depending on the stock's price at that time. In the meantime, your stock is held as collateral, and you can use the upfront payment to buy other securities that can diversify your portfolio. In addition, a PVF still allows you to benefit to some extent from any price appreciation during that time, though there may be a cap on that amount.

PVF agreements are complicated, and the IRS warns that care must be taken when using them. Consult a tax rofessional before using this strategy.


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