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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: Herm who wrote (9560)2/14/1999 4:28:00 PM
From: FruJu  Read Replies (1) of 14162
 
Tax issues for covered calls??

I think this has been covered before, but since it's rolling around to April 15 again and I can't search more than 120 days back, I thought I'd ask again to see if rules have changed.

1. Are covered calls "substantially identical instruments" for purposes of wash sale rules?

For example, I own 1000 IDTI stock. I sell the Aug 7.5 calls at 1 1/8 on July 5. The day before expiry (Aug 19), I decide to roll out another month, so I buy back the calls at 1 3/8 (creating a capital loss), but then immediately sell the Sep 7.5 calls at 1 5/8. The Sep 7.5 calls eventually expire worthless as IDTI closes below 7.5 at expiry.

Can I deduct the capital loss of rolling over the Aug 7.5 calls, or is this considered a wash sale?

2. If my stock is assigned at expiry through a covered call I've written, do I report the net proceeds of the sale as the strike price for the stock PLUS the proceeds of the covered call which was assigned all on one line, or do I report them as separate transactions?

The reason I ask this is that the 1099-B forms admonish you to make certain the figures you report on Schedule D match what the 1099-B forms say, but if you lump both the stock proceeds and the covered call proceeds together, then the total will obviously be more than what the 1099-B form says.

Is this likely to draw a red flag from the IRS?

Thanks in advance for advice.
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