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Technology Stocks : All About Sun Microsystems
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To: Carl Wysocki who wrote (7844)2/21/1998 6:55:00 PM
From: Hugh A. McWhorter  Read Replies (1) of 64865
 
Carl--I copied the following from IRS Publication 550, you might want to consider getting a copy. ( I have McMillan but have never read the section on tax implications of option sales for the combination of reasons that my book bears a copyright date of several years ago and what ever he says is non authoritative. Yet, without hesitation I recognize that he is a superb writer and his book is the best I have found on options. )

"If a call you write is exercised and you sell the underlying stock, increase your amount realized on the sale of the stock by the amount you received for the call when figuring your gain or loss. The gain or loss is long term or short term depending on your holding period of the stock."

"A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
1) Buy substantially identical stock or securities,
2) Acquire substantially identical stock or securities in a fully taxable trade, or
3) Acquire a contract or option to buy substantially identical stock or securities.

If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale.
If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities. The result is your basis in the new stock or securities. The effect of this adjustment is to postpone the loss deduction until the disposition of the new stock or securities. Your holding period for the new stock or securities includes the holding period for the stock or securities sold.

Stock or securities. Under the wash sale rules, stock or securities include contracts or options to acquire or sell stock or securities. "

Don't mean to spoil your day.

As to covered call sales on SUNW with the stock a little bit below $45 I got $1.25 for an approximate 3 month covered call write. If my math is correct this annualizes to $6 or approximately an 11% rate of return for selling a call which was about $10 out of the money and short lived.

I too used to go for the big bucks on long term writes until it occurred to me that the option pros on a Prodigy board in which I participate always wrote short term and rolled in the face of a run. Assuming SUNW retains my bullish prospective I will continue to sell short term calls at least $10 out of the money. 11% is a little better than what I get at the bank .

Best personal regards and thanks for the post.

Hugh
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