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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: jamok99 who wrote (13773)	7/11/2001 1:07:44 AM
From: Dan Duchardt	Respond to of 14162

jamok99, Here's a summary of the tax considerations cboe.com I've never actually done the tax drill with covered calls, but as long as you are not writing ITM I don't think you have anything to worry about with the underlying. In your first case, the loss on 500 shares is not washed out by selling the calls to cover the remaining 500. If those calls expire worthless you pay tax on the gain on the calls. If you are called out, the premium adjusts the basis of the 500 shares you still hold. In your second case, if you buy the calls back you pay tax on the gain on the calls. If you were to sell calls that are substantially ITM that would put you in a different situation, but I don't think it has any bearing on the 500 shares you sold first. It could affect the holding time of the remaining 500 shares, but since you pay tax on the gain on the calls I don't think there are any other consequences. A potentially more problematic area is what if you sell the calls again if the stock price rises? There you have a wash sale consideration if you sell calls of the same strike and expiration you bought back. If you wite a different strike or expiration, then the "substantially identical" criteria is hard for anybody to justify. As far as I can tell, options traders treat these as distinctly different entities. I'm just another amateur, so you should consult with an authority. Dan

To: jamok99 who wrote (13773)	7/11/2001 1:10:07 AM
From: JGoren	Respond to of 14162

question 1: I think we had some discussion in the past on the wash sale rules. Check back on the thread for those discussions. How can two sales trigger the wash sale rule? Wash sale rule is generally triggered by a purchase and sale within 30 days. You didn't buy. You sold. You sold the common, 500 shares. You sold calls on another 500 shares for a premium and then you got exercised. The premium you received only reduced your loss when the option was exercised. Anyone have a better idea?

To: jamok99 who wrote (13773)	7/16/2001 7:41:33 PM
From: Herm	Read Replies (1) \| Respond to of 14162

Hello Jamok99, Dan and JGoren gave you right on astute answers. I don't believe you have triggered a wash sale as well. Your first 500 shares is a loss and has nothing to do with your second 500 shares at this point. The CCs you sold is short term capital gains will reduce your loss on the second 500 shares that you may surrender if called out by your CC buyer. For tax purposes, the covered calls are "different" than the stock shares since there were not in the money.