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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: BDR who wrote (13474)1/8/2001 9:42:28 PM
From: Herm  Read Replies (3) of 14162
 
Well, Dale! I'm home now and I was still curious about your question. It seems I learned something new as well. Generally, I worry first about making the profit, not how much tax I will own. After all, having a tax problem is a good problem to have you know! :-)

Writing LEAPs Calls or Puts Against Equity Stocks - Taxable Events

According to the book by Harrison Roth, LEAPs - What They Are and How To Use Them for Profit and Protection, page 268, "There is no taxable event from writing a LEAPs Call until one of three following events occur:

1. The LEAPs Call expires, the premium is short-term capital gains, independent of the time involved.

2. The LEAPs Call is repurchased. This will be a short-term gain or loss, depending on how much you pay to close the position.

3. The LEAPs call is assigned. The LEAPs Call premium is added to the strike price.

Loss or long-term is computed by subtracting from that total the cost basis of the stock. The resultant loss or gain will be short-term or long-term depending on the holding period of the stock."

By the way, the "mark to market" was mentioned and it had to do with "broad-based" index options such as S&P where you would settle up at the end of each tax year.
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