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Biotech / Medical : Biotech Valuation

CRSP 51.59

-1.1%

Dec 2 3:59 PM EST

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To: Allan Harris who wrote (1728)	9/22/2000 12:29:24 PM
From: Biomaven	of 52153

Allan, In my case this was mostly a tax-driven strategy. I wanted it to be a "qualified" call, so it needs to be approximately at the money (I believe you can go one notch lower than the current price). I also wanted it to expire after Dec 31, so that if there was a gain (stock goes down or stays flat) I wouldn't be forced to recognize it. The whole tax issue surrounding covered calls is quite complex, and I need to go and review it again when I get a chance (my comprehension on this issue seems to have a half-life of only a few months <g>). I recall there being a good article on this issue at the CBOE site. The basic tax-avoidance idea that the regulations are trying to control is easy to describe: Set up two positions that move inversely. Assuming there is any movement at all, you will make a loss on one, which you recognize by closing out that position, and a gain on the other, which you defer by maintaining it. Presto! An essentially risk-free device for indefinitely deferring capital-gains taxation. (Repeat as needed every year.) Peter

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