Variable Prepaid Forward
Concentrated-position monetization through a structured forward sale.
The strategy takes ~80% of the position's value as cash today and reinvests into a broad index, while the residual stays in the original name. The benchmark track is what holding the concentrated stock outright would have produced.
Numbers are plausible placeholders, not a real backtest. Replace by running taxview-runner over the same window. Daily rebalance, CLARABEL solver. Marginal-rate assumptions: short-term 37%, long-term 20%, NIIT 3.8%.
Pledge the concentrated stock against a forward sale, take most of today's value as cash now, and defer the capital-gains event until settlement years from now. A wide enough collar keeps the structure out of §1259's constructive-sale reach.
| P_floor ≤ S_T ≤ P_cap | Settlement shares scale inside the collar bands |
| collar ∈ §1259 safe-harbor | Bands wide enough to avoid constructive-sale treatment |
Maximize the present value of cash C received today, given the tenor, the collar bands, and the counterparty's forward curve. Wider bands produce more cash today but less downside protection; narrower bands move the structure closer to (or across) the §1259 constructive-sale line and accelerate the tax to today.
We solve this as a portfolio-optimization problem each day, using CVXPY with the CLARABEL conic solver. The solver searches the feasible set defined by the constraints and returns the weight vector that minimises (or maximises) the objective — typically in tens of milliseconds for a 500-name universe.
- Concentrated position
The pledged stock and its restrictions (lockups, 10b5-1, governance).
- Liquidity need
How much cash the holder wants today.
- Tenor + collar
Settlement horizon and the floor/cap bands.
- Cash advance
Lump sum cash today, typically 75–85% of spot.
- Collar strikes
The floor and cap that define the §1259 safe-harbour.
- Settlement schedule
When shares deliver and how the band is applied at maturity.
Jurisdiction
The jurisdiction picks which tax engine the optimizer reasons about. Same construction, different statute — HIFO and §1091 in the US; ACB averaging and superficial-loss in Canada; FIFO and 50% CGT discount in Australia; FIFO with STT and 2018 grandfathering in India.
τ_J is the jurisdiction-specific tax cost function — it knows the local lot identification rules, the wash-sale equivalent's lookback window, the holding-period thresholds, and any special rates or exemptions. The optimizer plugs τ_J into the same objective; only the function body changes. Wash-sale-equivalent locks are imposed by the engine on the optimizer's feasible set for the relevant lookback.
Jurisdictions with averaging rules (Canada's ACB) produce less tax alpha than HIFO jurisdictions because you can't pick the highest-basis lot. Jurisdictions with a CGT discount (Australia) recover some of that by halving the long-term penalty. The optimizer behaves rationally inside whichever statute applies.
The console header carries the jurisdiction tag. Each trade ticket prices the lot under the local engine and breaks out short-term/long-term per local rules.
| Options Overlay | Variable Prepaid Forward | |
|---|---|---|
| Cash mechanic | Periodic premium | Lump sum at trade |
| Tax event on stock | None | Deferred to settlement |
| Tenor | 30 – 90 days, rolling | 1 – 10 years |
| Counterparty | Option market makers | Investment bank |