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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: andydaoust who wrote (3423)2/26/2002 4:42:41 PM
From: Dan Duchardt  Read Replies (1) of 5205
 
Andy,

I wish they would create rules that could easily be interpreted. I think doing options in the IRA might be best.

We can certainly all agree on that. So far I have not had to fight my way through all this stuff in a tax return, but I may have to do some this year. I apologize if I came across as challenging your expertise. That was not my intent. I was merely stating my disclaimer to acknowledge my own limited experience with this stuff.

I think the answers to your questions are in the "Short Calls" section on page 11; even though it is a subtopic of "One-Sided Equity Option Positions" it addresses covered calls.

Short Calls
Premium received for writing a call is not included
in income at the time of receipt, but is held in suspense
until the writer's obligation to deliver the
underlying stock expires or until the writer either
sells the underlying stock as a result of the assignment
of the call or closes the option (other than by
expiration or assignment). If the writer's obligation
expires, the premium is short-term capital gain to
the writer upon expiration, regardless of the length
of time the call is outstanding.
Similarly, gain or loss on the termination of
the writer's obligation through closing the option
other than by expiration or assignment is short-term
capital gain or loss, regardless of the length of
time the call is outstanding. However, if a call is
assigned, the strike price plus the premium received
becomes the sale price of the stock in determining
gain or loss. The resulting gain or loss depends
upon the holding period and the basis of the underlying
property used to make the delivery to satisfy
the assignment. It is possible that previously owned
stock will be long-term and, thus, without taking
into account the offsetting position rules discussed
on page 13, may result in long-term capital gain or
loss (20% maximum tax rate).

Dan
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