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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: Eric K. who wrote (117034)	6/21/2000 9:40:00 PM
From: Elmer	Read Replies (2) \| Respond to of 1570843

Re: "Could you explain the "nice tax advantages" of writing covered calls?" I will address this later tonight. The sun is starting to set here in Phoenix so I'm going to slip out for my run. It's probably down to 100. EP

To: Eric K. who wrote (117034)	6/21/2000 11:07:00 PM
From: Elmer	Read Replies (3) \| Respond to of 1570843

Re: "Could you explain the "nice tax advantages" of writing covered calls? Aren't your premiums short-term capital gains?" First off before anyone reminds me let me say that others have done better during this AMD rise than I have. Good for you. You took the risk and now you enjoy the reward and I congratulate you. Premiums from options are short term but not taxable until exercised, expiration or otherwise disposed. cboe.com "Premium received for writing a call is not included in income at the time of receipt, but is held in suspense until the writer's obligation to deliver the underlying stock expires or until the writer either sells the underlying stock as a result of the assignment of the call or closes the option (other than by expiration or assignment). If the writer's obligation expires, the premium is short-term capital gain to the writer upon expiration, regardless of the length of time the call was outstanding" Re: "Moreover, I don't think you have had your long-position for over a year, so aren't you subject to your long position being called away and becoming a short-term gain as well?" I have no intention of being called away. If the stock price is such that it threatens to be called, I'll roll the options out perhaps a year or more and raise the strike price in so doing. If you expect AMD to be a long term growth stock this should allow for price increase year after year, within limits admittedly but seeing as I never paid for these shares I'll be happy with whatever I get. Another possible tax advantage is to allow short term capitol gains to be converted instantly into long term. Here's how: Say AMD approaches $120 in Dec'00 and I'm short Jan $120s (which I am). I roll my short call position out to Jan'02 $140s for no net cash out of pocket. Say come Dec'01 AMD is at $200. I've got to do something or lose them. During '01 say I've made a lot of money writing options and have a big tax bill due. I could buy back my short '02 $140 calls for about say $62. I have created a tax loss because I originally sold those puts for say $10. A loss of $52 which offsets some of my short term CGs for '01, but transfered almost the full amount into AMD equity with long term CG status. Note this is just one optional choice. I could instead roll the calls out another year and up the strike price again to say $150 or $155. Re: "Given your supposedly massive wealth position, doesn't your clever strategy make all your AMD gains taxable at 39.6%, plus 9.3% extra if you are living in California, or an equivalently tax-happy state?" I don't claim to have Darbes class wealth but I am no longer establishing my fortune. I believe I've also addressed the ST vrs LT CG issue as well. I plan to move to Nevada before the options positions unravel. I don't claim this is the best way to go but when you have selected a strategy such as I have these are some of the options you have along the way. EP