Hugh, it sounds like we are in agreement on one point, but not
the other. I wish I knew how to cut and paste, which hasn't been
a problem for the last 11 years when I had a Sun machine running
on SunOS/Solaris, but now I'm trying to learn the limitations of
my evil empire OS, and I'm pretty slow.
I must have misunderstood what you said on exercises, because
I agree with your citation (Hey, maybe we agree, but that doesn't
make us right).
I've been filing my taxes the "McMillan" way, and neither the IRS
(yet), nor my Tax Guy has complained. I'll tread on thin ice here
when I try to apply logic and reason to the Tax Code, but it could be
because options have a definite life, and once one expires, the
wash sale doesn't apply. I do know that you can't sell a stock
for a loss, and reenter within 30 days on an options position without
invoking the wash sale rule. I figure McMillan has plenty of
experience with the tax aspects of options, so I'll rely upon his
council. I wouldn't rely upon him for advice outside of
the area of options, though. Besides, My Tax Guy will let me
know shortly if I'm wrong.
Now, to get back to the topic.
I like to write short term calls, but Sun just doesn't have a high enough IV to make it worthwhile (IV seems to be stuck in the .40 -
.45 range). One advantage of going longer term is that the stock
doesn't get called on short term blips. Last summer I'd written
Oct 37.5s, and I was resigned to getting called when the stock
topped 50. I bought them back at 3/8 in October. Good news, bad
news I guess. Around the same time, I'd written Jan 40's and 42.5s
and also managed to cover them at a profit. But, because I'm
playing with single digit basis stock, I have to tread carefully. But,
whenever I write, I'm fully prepared to get called, the taxes be damned.
I do like to write 10-20% out-of-the-money, so I have further appreciation potential as well as current income. Besides, I
recently retired, so I'm trying to generate a cash flow to maintain
my lifestyle, without having to resort to the boredom of bonds.
Since I know Sun best, and have the bulk of my portfolio in Sun,
this is the best avenue for getting option income.
Carl |
