Married Put and Stock is a tax strategy designed to avoid the unintended tax consequence of a put purchase derived from the general rules governing short sales.

We all know that tax laws are very complex and full of tax "traps" for the unwary but, I think you'll agree, the married put and stock tax trap is a beaut!

If you are a short-term trader, none of this will matter much to you. However, if you are an investor whose objective is long-term capital gain treatment: Pay strict attention!

Situation 1:

Suppose you are in the fortunate position of holding stock that qualifies for long-term capital gain treatment. You did your research well, you took the risk, you sweated out the holding period, and now you think that it may be a good time to cash in.

Let's further suppose that it's near year end. If you cash in now, you will owe tax for this year. Since it's near the end of the year, you could push the tax into next year by postponing the sale until after year end. Smart move, tax-wise.

The only problem is: What if the stock falls while you're waiting for the calendar to go by?

Suddenly it hits you! What if you bought a put option that doesn't expire until after this year is over??? Terrific!

That way, if the stock drops, you just locked in todays' price and, if the stock continues to climb, you get to make an even bigger gain next year!

Either way, the tax is pushed into next years' business all at the same time! Brilliant!

All this, mind you, with the blessing of those very nice people over at the IRS.