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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 (10869)	5/23/1999 8:13:00 PM
From: FruJu	Read Replies (2) of 14162

Rolling out to reduce capital gains taxes... Herm, I know in general you don't like to buy back calls if you're going to get called out, but I just decided to do so this past expiry for tax reasons. How do you feel about the following reasoning: I am long 2000 IDTI at an average price of 6 3/8. Through CCing I've reduced my NUT to 4.74. I was short 20 MAY 7.5 calls at 7/16 sold back in early April when IDTI first tagged the upper BB (it's been tracking it up ever since per chart below) <http://www.askresearch.com/cgi-bin/chart?symbol=IDTI&exchange=USA&size=640x480&months=6+months&type=Bar&color=Graph+Paper&scale=Logarithmic&moving1=50+day&moving2=None&moving3=None&moving=bollinger&bollinger=20+day&sto=15-5-5&wpr=12&chart=rsi&rsi=8&macd=12-25-9&roc=16-8&mfi=13> I was going to let myself get called out and take the profit of $6500 or so but then looked back to see exactly when I had bought the 2000 IDTI. Turns out it was back in July 1998, so if I let myself get called out this month, I'd be looking at a short terms capital gains tax rate on the difference between (6 3/8 - 7/16) to 7 1/2, or about $3000. So instead, I decided to buy back the MAY 7.5 calls (at a loss, 1 1/16) and roll out to August 7.5 (1 7/8) so assuming I'm called out then, it will be a long term capital gain (saving me about 13% on the profit) on both the 6 3/8 to 7 1/2 rise, PLUS the 1 7/8 option (as I understand the inclusion of CCs at the same tax rate as the underlying security even if the CCs are short term). In the meantime, my NUT has been reduced to 4.74 - 7/16 + 1 1/16 - 1 7/8 = 3.5. Is this a correct understanding of the tax rules, and do you think this was a valid reason for rolling out in this case?

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