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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: Dan Duchardt who wrote (3413)2/26/2002 3:18:13 PM
From: andydaoust  Read Replies (1) of 5205
 
Dan,

First I hope I don’t come across as an expert on taxes or option trades. The reason I joined the discussion was to tap into the minds of other investors with more experience then myself.

I had read a book several years’ back and had it in my head that if you have a short position it is a short-term capital gain. I thought that an option and equity linked together are married. Okay enough for how screwed up I was.

Thanks for the link to CBOE tax guide. It is still confusing, but I have a better understanding of the tax rules. I also realize that I still don’t know enough. The good news for me is that I don’t believe I did anything that could be considered wrong in the past.

Tell me if I understand this or not.
Covered Call

If I own a stock long-term and sell a call (ATM or OTM) that expires and is assigned short-term the whole transaction is long-term.

If I buy a stock and sell a qualified option on the same day (ATM or OTM) that expires greater than one year later, would that position be long term if assigned? See page 18 in tax and investing guide covered call special rules. If I sell ITM call and am assigned, would the whole position be short-term due to the suspension of holding period of the underlying?

What happens if the call expires and is not assigned? How is that treated? I’ve thought that would be considered short term as it is similar to a straight short position.

I wish they would create rules that could easily be interpreted. I think doing options in the IRA might be best.

Andy D
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