Prepaid variable forward

Also called: PVF, Prepaid forward

A prepaid variable forward is a contract where you receive cash now and agree to deliver shares at a future date, with the number of shares delivered varying by the stock price at settlement. It provides upfront liquidity against a concentrated position without an outright sale.

How does a prepaid variable forward work?

The variable share count effectively builds in a collar-like band — you keep some upside and have some downside protection. Because it preserves a range of risk and reward, a properly structured PVF can avoid being treated as a constructive sale under IRC §1259, deferring the gain until settlement.

The cost is complexity and counterparty terms; PVFs are bespoke contracts with embedded pricing. A transparent option overlay can achieve a similar economic result with more visibility.

This definition is for educational and informational purposes only and is not investment, tax, or legal advice. Option strategies involve risk and are not suitable for all investors. Tax treatment of options is complex and depends on individual circumstances, holding periods, and applicable law. Consult a qualified tax professional and investment advisor before acting. Yayati Asset Management is a Registered Investment Adviser.