The Surprising Tax Benefits of Hedging with 1256 Index Put Options

The index puts shown in Adaptive’s robust downside protection tool can be tax-smart as well as cost-effective for managing portfolio risk. Here’s what you need to know about 1256 options.

You already know index put options, correlated for your investments, can be a highly efficient way to buy down risk in all kinds of portfolios.

Less understood is that so-called 1256 options also have distinct advantages for hedging in taxable accounts. Not all index options are created equal.

Put options on ETF’s, such as SPY and QQQ, tend to better known, but cash-settled options on the underlying indexes, such as the SPX and NDX, qualify for a special tax treatment known as 1256. The 1256 advantage is that 60% of realized capital gains can be classified for long-term capital gains rates, often resulting in meaningfully lower tax bills. And because they are cash-settled, 1256 options can be easier to manage for ongoing hedges.

Join options pro and enrolled agent Mike Tosaw as he shows how Adaptive can identify tax-advantaged 1256 index options for hedging your portfolios.

Mike will also discuss how tax-aware strategies can differentiate an advisory practice and reinforce client relationships. Join live to ask questions, or watch on-demand.