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Strategies & Market Trends : Options
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To: Dr. Id who wrote (5531)3/25/2000 9:16:00 PM
From: Bridge Player  Read Replies (1) of 8096
 
<<I'm not a tax guru, but each option position is separate, and expired options cannot be used to reduce the cost basis of a subsequent purchase. In other words, each expired call that you've sold is a short term capital gain. If the option is exercised, then it can be used to reduce your cost basis in the stock.>>

The first two sentences in this paragraph are correct.

The third sentence is incorrect.

Publication 550, Investment Income and Expenses, For use in preparing 1999 Returns, page 53:

"If a call you write is exercised and you sell the underlying stock, increase your amount realized on the sale of the stock by the amount you received for the call when figuring your gain or loss. The gain or loss is long term or short term depending on your holding period of the stock."

The option premium received for writing the call option has no effect on the original cost basis of your stock.

BP
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