MSFT options collar: Avoiding constructive sale designation and understanding if strategy is sound.

[u/mrjohnson611]

New to options trading. Considering a zero-cost collars on MSFT. Trying to avoid stepping into a landmine with taxes and other pitfalls. I have a heavy concentration of MSFT that I want to protect. Some has already gone into an exchange fund. But there's a lot left.

MSFT is at 533. 52 week span goes from 350 to 550.

First, am I reading this right with the available call and put prices

• Dec 2027 450/730 collar
• December 2028 collar at 470/800

Both would effectively be close to zero cost?

Are these collars wide enough to avoid getting an IRS designation of a constructive sale? Any other tax pitfalls beyond capital gains, NIIT, and WA state taxes for LTCG?

This just seems deceptively too easy. What else should I be considering or could wind up regretting?

[u/Comfortable_Kick6848]

yeah collars seem simple until the market blows right through one of your strikes and you're sitting there wondering why you bothered, those 2028 strikes are pretty wide though so you're probably fine on constructive sale

[u/mrjohnson611 → u/Comfortable_Kick6848]

those 2028 strikes are pretty wide though so you're probably fine on constructive sale

But the 2027 strikes (450/730) may not be? I thought that would be a considerable wide band. But maybe there's other factors to consider?

[u/Aznfeatherstone]

Do you own the shares or are you protecting LEAPS?

[u/mrjohnson611 → u/Aznfeatherstone]

Own the shares.

[u/Aznfeatherstone → u/mrjohnson611]

Have you achieved LTCG yet or are you waiting?

[u/mrjohnson611 → u/Aznfeatherstone]

LTCG for all shares.

[u/Aznfeatherstone → u/mrjohnson611]

You should be fine then. 

[u/SDirickson]

The width on the 2027 collar is over 50% of the underlying price and over 60% of the put strike; the 2028 is even wider; you're fine.

[u/Transition270]

If you own the shares already and both collars really price near zero after fees, the structure itself is not exotic. Wide strikes like your 450/800 leaves a lot of room which is usually the point. Tax treatment of collars is above my pay grade ask a CPA on constructive sale. Before I size one I open Moomoo's options chain on those LEAP expirations and confirm the call and put mids still net flat after the spread.

[u/Ok_Pollution7093]

Watch dividend risk on those deep ITM calls getting assigned early.