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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: Allen Furlan who wrote (3409)	2/25/2002 3:21:56 PM
From: andydaoust	Read Replies (2) of 5205

Allen, When I was speaking about the LEAP covered call tax advantage, I was considering the position married. It would be married if the option was sold on the same day the stock was purchased. The position then has the tax implications of one unit. At expiration the stock would be sold if not assigned and the unit would be a long term gain or loss if held over one year. In your case, your net cost basis is $1.45 less commission. If AES ends above 2.5 in 2004 then you would have a long term gain of $1.05 less commissions. You would still have a long term gain if AES ends between $1.45 and $2.5 depending on commission if you sold the stock. If you kept the stock then the expired call would have been short and the gain would be short term on the entire premium. The thing with dealing with the IRS is to always default to giving them the most money when the area is grey. In your case, I don't know how the IRS would feel about splitting the stock position and the call into two separate taxable events. The rules are so complicated. Did you cover your naked calls on jnpr, brcd, brcm, or are you planning to hold them to expiration? Andy D

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