how do you “hedge” a stock to “lock in” an existing profit?

Question

I’ve hard of “hedging” when someone wants to “lock in” a position’s profit, without selling the stock. I was told this is for tax reasons because if you hold the stock over a year you get taxed lower.

But doesn’t that require additional capital? Do I use options?

In: 3

Answer 1

You can sell a call option on the stock and keep the underlying; basically you lock in the profit in exchange of giving up the upside