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To: RoseCampion who wrote (61395)	1/11/2000 12:18:00 AM
From: Wyätt Gwyön	Respond to of 152472

Hi Rose, Thanks for setting the record straight... Wonder if you can buy a WOTM (way out-of-the-money) put that's basically delta 1.00 to accomplish the same thing, though? Do you mean an ITM put (i.e., strike above underlying--I think that's considered ITM for puts)? WITM is what you need for a delta of -1. I think that's still a constructive sale, as you're effectively hedged. OTOH, I think the other day somebody was saying if you go at least 20% OTM, you can basically avoid the constructive sale rule. Doesn't sound hard and fast, though.

To: RoseCampion who wrote (61395)	1/11/2000 4:40:00 AM
From: Labrador	Read Replies (1) \| Respond to of 152472

>>I'll go further than that. Sell a deep-in-the-money (or maybe even a just-enough-in-the-money) call against long common, and it is considered a "constructive sale" under the regs, and you will have to pay capital gains as if you'd sold the shares then and there, and you will suspend or eliminate completely any long-term holding period you've built up in owning the shares.<< I do not believe that there have been any regulations issued under this 1997 tax act provision. The statute and underlying legislative history do not address option positions, although they do address forwards and futures. In determining whether an ?in-the-money? option will be treated as a constructive sale, Congress anticipated that IRS regs will provide a specific standard that takes into account many of the factors described with respect to collars, including the yield and volatility of the stock and the period and other terms of the option. To date, unchartered water, and since IRS generally is prohibited from issuing regs that are retroactive unless IRS issues the regs within 18 months of the date of enactment of the provision, you're probably OK to write in-the-money options without running afoul of the constructive sale provisions. I'd also suggest that one check with their accountant for their views -- these above are mine.

To: RoseCampion who wrote (61395)	1/11/2000 8:26:00 AM
From: DaveMG	Read Replies (1) \| Respond to of 152472

The law is intended to prevent you from doing a free, no-risk hedge of your long stock position (by selling a DIM call) just so you can keep it around for the necessary time to get long-term capital gains treatment - and as such, actually makes sense to me. It's a "if it looks like a duck" rule - if you've done something to eliminate all your risk, then you've performed the moral equivalent of selling your stock, and should be taxed the same as someone who did. Rose..Yes but can't you sell the covered calls as a hedge and buy them back before expiration, paying any short term gains on the option transaction, leaving your underlying position unchanged vis the IRS? If you end up holding the stock it must be hard for them to argue that you've sold your stock. DMG