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To: Chuzzlewit who wrote (135449)	7/3/1999 2:55:00 PM
From: Geoff Nunn	Read Replies (1) \| Respond to of 176387

To Chuzz, re: options assignments You wrote, If I understand you correctly, you advocate buying a sufficient number of shares for delivery and then letting those shares be assigned. That is correct. By buying additional shares at market during pre-assignment, and substituting these for a portion of the shares you already have, you can raise your basis sufficiently on the delivered shares to avoid capital gains. Example: You write calls on 500 shares at a strike price of $30. Assume the the 500 shares have a basis of $10/sh. Suppose the option premium is $4/sh. Let's assume the price of the stock is $36 at expiry. If you let your position go to assignment, the zero-tax outcome would be to purchase an additional 461.5 shares in the market at $36/sh, then deliver them at the strike price $30. The remaining 38.5 shares would be delivered from your existing holding. The additional shares you purchase will cost $16614. These shares are sold at the strike price $30, generating $13,845 in revenue and a loss of $2769. Partially offsetting this loss, you have a capital gain on the sale of the 38.5 "old" shares. These shares have a basis of $10 and are sold for $30. The capital gain is: 38.5 x $20 = $769. In addition, you have $2000 in income from the sale of the option. Adding all the gains and losses together, we have the desired outcome -$2769 + $769 + $2000 = 0 So, that's the idea. A formula can be derived to determine the number of old shares to deliver from inventory vs the number of new shares to buy on the market. I won't present it here unless someone asks me to. Regarding transactions costs, I think you and I calculate them in the same way. I am a bit surprised that in your example the cost of the spread is only $.125/sh on six-dollar options. It is my impression that in this price range the spreads are frequently $.50 or so, although granted they are often less. However, a spread of only 1/8 point on a $6 option strikes me as very atypical. Geoff PS - sorry, but I can't help you with the wash rule question you raised.