- quote -

I'm apparently wrong; a call that expires is taxed
immediately (short term, too). I should have figured that;
the correct question to ask is "which interpretation
maximizes taxes?"

Seth

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

- quote -

You are incorrect. Basis is $50, proceeds are $58. See IRS
Pub 550.

- quote -

No, you're wrong. The premium only gets added to proceeds
when the option is exercised. If it expires worthless, it
is a standalone transaction.

So in your example, each of those times you sell a call
that doesn't get exercised the following appears on your
sched D in the short-term section:
Description Sale Date Proceeds Acq. Date Basis Gain
XYZ Call M/D/Y $300 EXPIRED $0 $300

But when a call finally is exercised against the stock
you're holding, *then* the option ceases to have an
independent existance and the premium gets added to
the stocks proceeds as previously discussed.

- quote -

See above, you don't have to.

- quote -

Incorrect. They are all SHORT-TERM gains, except for the
sale that sends with the option being exercised and calling
away your stock.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

"704set" <704set[at]anywhereyouwant.com> wrote:

- quote -

OK who is right? Dcaro or Joetaxpayer?

704set

Moderator: Joe has acknowledged that he was incorrect.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

joetaxpayer wrote:
- quote -

Update - sorry, I was wrong to agree - see pub 550 at
irs.gov for the answer;

If a call you write is exercised and you sell the underlying
stock, increase your amount realized on the sale of the
stock by the amount you received for the call when figuring
your gain or loss. The gain or loss is long term or short
depending on your holding period of the stock.

(so basis stays $50, but sale is $58)

JOE

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

wrote:

- quote -

I don't think so. Here's why:

Buy the stock at 50. Sell a call at 3; it doesn't get
called. Repeat 20 times. According to you, the basis is
still 50, the (eventual) sale price is 60+actual sale price.
I don't think the IRS will wait that long.

If you reduce the basis, then once it has been reduced to 0,
any further option sales produce capital gain. So the first
16 reduce the basis to $2; the next one reduces it to $0 and
produces $1 capital gain (similar to a "return of capital
dividend").

If you've held the stock long-term, all the option sales are
also long-term capital gains.

Seth

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

"704set" <704set[at]anywhereyouwant.com> wrote:

- quote -

OK who is right? Dcaro or Joetaxpayer?

704set

Moderator: Joe has acknowledged that he was incorrect.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

joetaxpayer wrote:
- quote -

Update - sorry, I was wrong to agree - see pub 550 at
irs.gov for the answer;

If a call you write is exercised and you sell the underlying
stock, increase your amount realized on the sale of the
stock by the amount you received for the call when figuring
your gain or loss. The gain or loss is long term or short
depending on your holding period of the stock.

(so basis stays $50, but sale is $58)

JOE

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

wrote:

- quote -

I don't think so. Here's why:

Buy the stock at 50. Sell a call at 3; it doesn't get
called. Repeat 20 times. According to you, the basis is
still 50, the (eventual) sale price is 60+actual sale price.
I don't think the IRS will wait that long.

If you reduce the basis, then once it has been reduced to 0,
any further option sales produce capital gain. So the first
16 reduce the basis to $2; the next one reduces it to $0 and
produces $1 capital gain (similar to a "return of capital
dividend").

If you've held the stock long-term, all the option sales are
also long-term capital gains.

Seth

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

704set wrote:

- quote -

You got it, exactly.

JOE

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Sale [at] 58, Basis 50

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

When a covered call option is exercised on a stock, how is
this reported. I know it becomes part of the cost basis.
So what do you do? Reduce the cost basis of the stock by
the sale price of the option when reporting it on the Sched.
D?

Example:

Buy 100 XYZ [at] 50
Sell 1 call [at] 3 with a strike price of 55.

The stock is called at 55. So is the cost basis reported on
Sched. D at 47 with a sale at 55?

Thanks,
704set

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >