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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: Joey Smith who wrote (7515)5/26/1998 3:10:00 PM
From: Greg Higgins  Read Replies (1) of 14162
 
Joey Smith writes:
1). Do I get taxed for the premium revenue I receive right away?
No. Taxes don't become due until the position closes. Interest income on credit positions is taxable though.

2). If I decide to buy back the call at any time, is this treated as a normal capital gains a-la stock securities?
It's normally a short-term trade. It could be long term if you're using LEAPS, but if you voluntarily close the position, it's independent of the underlying security.

3). If I have to sell the shares at the strike price, is this treated as a normal capital gains?
The premiums are added to the sales amount and the whole kit-n-kaboodle becomes taxable using the stock's capital gains rate. So yes.

4). What happens if I let the option expire worthless? Do I have to pay capital gains on the entire premium I received since this is my gain?
Yes. This is normally a short term gain. (But can be long using LEAPS).

P.S. I'm not an accountant, nor do I play one on TV .
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