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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: FaultLine who wrote (512)5/10/2001 4:38:17 PM
From: Mike Buckley   of 5205
 
FL,

Based on my reading of the thread, I think the answer to your question asking if we should ignore the cost basis of the stock has to do with whether or not there will be tax consequences. If there are no tax consequences triggered by having the stock assigned, the cost basis would be unimportant. Otherwise, it becomes immensely important depending on one's particular tax situation.

Case in point: Though Frank ignores the cost basis for his own accounts, he's referring to tax-deferred accounts. He wisely counseled me that writing covered calls in a taxable account against stocks that are immensely profitable is a very tenuous situation because of the risk associated with the tax consequences should the stock be called. (He described the situation better but I can't think of the exact words he used.)

--Mike Buckley
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