Did I say mandatory? I meant optional! You’re “free” to die in a cardboard box under a freeway as a market capitalist scarecrow warning to the other ants so they keep showing up to make us more!
Did I say mandatory? I meant optional! You’re “free” to die in a cardboard box under a freeway as a market capitalist scarecrow warning to the other ants so they keep showing up to make us more!
There has to be hedging requirements right? If you have 100 million of growth stocks for example, surely you’d need to have put option contracts for that loaning insitution to accept the risk of unrealized assets to secure a loan of that size?
Anyone know how that works? Im sure each loan is reviewed thoroughly for its risk at that level.
Put options are a specific investment vehicle. The OP is just making a blanket statement about unrealized gains. Many, many NOT rich people have unrealized gains. And there literally is NO value to tax. The investment could go bust and there is a loss, no gain at all. At what point in a long term investment is the tax assessed?
But the point of a put contract would be to lock in the strike price for a duration determined by the expiration date. If put contracts were purchased for the duration of the loan, the potential risk of being unable to pay the bank due to depreciation would be mitigated.
Like how farmers buy puts on their commodity to protect themselves from a bad year.
It costs money to buy a put contract to protect the loan.
So if you need a 1mil loan, now you also gotta buy puts that’ll protect a downturn of 1mil. So now you gotta sell stock which will be taxed. It’s less than 1mil so you’re taxed less, but you will have taxes.
Edit: you could zero cost collar (puts + covered calls) your investment to protect it’s current value, but you’ll give up potential gains as well to get the zero cost part. But this would be a way to protect the value without selling. If the options get exercised though, you’d then have some taxes to pay.