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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: Mathemagician who wrote (1514)7/17/2001 10:31:31 AM
From: BDR   of 5205
 
<<To me, it makes less sense to adopt a LTBH attitude with options than with stocks. All option premium gains are short-term regardless of the holding period.>>

True in most but not all cases. All gains from options are short term because options by definition expire in less than a year. And profits from shorting LEAPS are treated as short term gains because profits from shorting are always treated as short term gains regardless of the holding period. But some profits from long LEAPS may be long term gains. The extended expirations for LEAPS mean that long LEAPS positions can be held long enough to qualify for long term gain treatment. As Roth pointed out in his book, buying a LEAPS put on a stock that you think is going to decline and holding it for more than a year is the only way to essentially short a stock and have your profits treated as long term gains.

cboe.com
Long Puts
If a put option is acquired and sold prior to exercise, any gain or loss is short-term or long-term capital gain or loss, depending on the holding period of the put. The expiration of a long put results either in a short-term capital loss if the put is held one year or less or in a long-term capital loss (20% or 28% maximum tax rate, as the case may be) if held for more than one year. If the put is exercised, the cost of the put and the commission on the sale of the stock reduce the amount realized upon the sale of the underlying stock delivered to satisfy the exercise.

Of course, your post dealt with naked short LEAPS put positions and so the profits would be taxed as short term gains, but I wanted to point out that long term treatment is possible.

Caveat - don't get your tax advice off of threads on the internet. Talk to a CPA or tax attorney.
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