How To Write Covered Calls - An Ongoing Real Case Study! Message Board

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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!

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To: FruJu who wrote (7311)	4/18/1998 12:00:00 PM
From: Herm	of 14162

Hi Evan, Great question! Normally, your brokerage will automatically exercise you options on expiration if they are in the money by even a small amount. So, if you (the holder) does not choose (or couldn't in your case) to liquidate the option in the market, it will be exercised for you. Therefore, the stock should be sold at the striking price and the net cost of the PUT is subtracted from the net sale proceeds of the underlying stock for tax purposes. The difference between the sold exercised stock price less commissions subtracted by the cost of the PUT(s) less commission is your taxable net profit. Example: XYZ @ $45 ($4,500 - $25 comm.) $4475 Net cost of PUT ($200 + $25 comm) - $225 -------- $4,250 net cost current stock $40 price $4,000 ------ $250 net profit NOTE - Based on the information you gave me I have no idea what your actual profit numbers will be. This is only an example of the dynamics and process to your situation for the reader's benefit.

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