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February 6th, 2014 at 8:13 pm
Phil/Strategy – I am getting a very large lump sum in a few weeks, and my tax advisor has advised that I wouldn't be violating any IRS rules if I deferred paying taxes on this money until the end of the year. With this in mind, I would like to construct a relatively conservative portfolio with the tax money that is designed to be able to be liquidated in January-February of next year. I will have portfolio margin available. My plan is to do conservative artificial buy-writes on low risk dividend payers with a couple more speculative names mixed in (CLF & BRCM). My list includes the following: MO, VZ, KO, AAPL, GE, CLF, PM, MMM, PG, BRCM. I will be selling short puts about 10% below current levels, and purchasing call spreads that are at least 100% in the money right now. I'm planning on diversifying into 10 names, and using 25-30% of my available buying power. Assuming all of my stocks end the year where they are now or up (big assumption, I know), the portfolio would return about 17%. However, I would be thrilled with 10%.
To be clear, if the market tanks and I lose 10-20% of the portfolio, I have plenty of other money to cover the tax bill at the end of the year, so that isn't a big concern. I've chosen a bunch of consistent dividend payers, who are in the bottom of their range, and I believe their dividends should help provide a floor in the event of a serious downturn. I will also invest in a TZA hedge, to further protect myself.
Do you see any flaw in my thinking, or have any suggestions on how to do this in a smarter way?
Thx.