At Paracca Financial Group, we take a sophisticated, tax-aware approach to portfolio management—especially when it comes to helping clients mitigate the impact of capital gains taxes. One of the tools we use for this purpose is the strategic implementation of option spreads. Much like traditional long/short equity strategies, which are often employed to generate offsetting capital losses, we use option spreads to achieve similar tax outcomes while maintaining control over portfolio risk and exposure.
By carefully structuring option spread positions—such as vertical, calendar, or diagonal spreads—we're able to create realized capital losses that can be used to offset gains elsewhere in a client’s portfolio. This allows us to actively manage taxable events without having to sell long-term equity positions that might be central to a client’s long-term investment strategy. In effect, this method allows us to separate tax management from core portfolio management.
This technique is particularly effective in years with significant market gains or portfolio rebalancing activity, where embedded gains might otherwise trigger a higher-than-necessary tax liability. It also offers more flexibility than relying solely on equity positions for tax loss harvesting. As always, our strategies are tailored to each client's specific financial picture and coordinated closely with their tax advisor to ensure alignment with broader financial goals and compliance with IRS regulations.
