One question: You mentioned that ALL short option gains are considered ordinary income. If I sell a LEAP call or put, close it in 1 1/2 years (not assigned or expired), then I still get taxed at short term/ordinary income rate? I had sold some LEAP puts with the intention that if they become profitable, I will close them to get the L/T tax treatment. I will now check with my tax advisers on this.
Yes, always short term. The rationale is as follows:
when you are short either stock or option, you do not hold an asset. Look at your top part Schedule D It says: Short term Assets: held less than 1 year.
When do you hold the asset: when you close your short position, i.e. when you buy it back, and in your holding period is 0 day (negative if one nitpicks), and that is less than 1 year.
Contrast that if you buy call leap call holding it for > 1 year, and then sell it. You are holding an asset, that option is an asset, and since it is over a year, it is taxed as l/t capital gain.
I am sure you tax adviser can provide more info, or get IRS tax publication which deals with this by accessing its website.
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I always sell the calls about 20% more than my stock buy price, and sell the puts 20% below. I feel safer that way, and can still participate if the market rises.
yes, a strangle is a good approach, you might still keep the stock, don't get assignment and double dip on the premium.
Good Luck to you.
Paul. |
