Don't agree on the buy vs sell - if they are on the PHLX, they have to be cleared by the OCC, which means they are backed by the full faith and credit of the US government (after the full faith and credit of the option exchanges), but has anybody checked out the tax consequences from selling?
Typically, options are covered under the open transaction rule, which means that there is no tax due before the position closes. Corporations dealing in their own stock can't create a taxable transaction (which is why MSFT is the largest seller of MSFT puts - tax-free income).
So if the XPO sells for a significant percentage of the underlying, never expires, and the income is non-taxable, wouldn't anyone facing a taxable gain on a stock sell the (deep-in-the-money) XPO call instead? If its a dividend paying stock, its a win-win.
You keep the equity, keep the dividend, the equity hedges the short call, and you get a tax-deferred income - plus, if the option is ever executed, you get paid again (the strike price) for delivering the stock you've already been paid for once (and the strike should be selected to cover the future taxable gain, and this max should be known at the time you enter the transaction).
Any thoughts? |
