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Strategies & Market Trends : Options -- Ignore unavailable to you. Want to Upgrade?

To: Neal davidson who wrote (5528)	3/25/2000 1:08:00 PM
From: Dr. Id	Read Replies (2) \| Respond to of 8096

Anyway, do I have to take gains on every single covered call that expires worthless? OR, can I use the proceeds of the covered call to reduce my basis in the additional purchase? I'm not a tax guru, but each option position is separate, and expired options cannot be used to reduce the cost basis of a subsequent purchase. In other words, each expired call that you've sold is a short term capital gain. If the option is exercised, then it can be used to reduce your cost basis in the stock. JB

To: Neal davidson who wrote (5528)	3/25/2000 9:00:00 PM
From: Bridge Player	Respond to of 8096

<< Anyway, do I have to take gains on every single covered call that expires worthless? OR, can I use the proceeds of the covered call to reduce my basis in the additional purchase? >> Publication 550, Investment Income and Expenses, for use in preparing 1999 Returns, page 52: "If you are not in the business of writing options, and an option you write on stocks, securities, commodities or commodity futures is not exercised, the amount you receive is a short-term capital gain." page 53: " Writers of calls and puts. If you write (grant) a call or a put, do not include the amount you receive for writing it in your income at the time of receipt. Carry it in a deferred account until: 1) Your obligation expires, ................. ................. If your obligation expires, the amount you received for writing the call or put is short-term capital gain." BP