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Strategies & Market Trends : The Covered Calls for Dummies Thread -- Ignore unavailable to you. Want to Upgrade?

To: Allen Furlan who wrote (3409)	2/23/2002 9:13:01 PM
From: Dominick	Respond to of 5205

Your post is exactly why I'm happy that all my trades are done within an IRA. Granted some types of trades are not permitted but I never have to list and account for all my trades. I only have to report the amount I withdraw to spend. Dominick

To: Allen Furlan who wrote (3409)	2/24/2002 11:30:38 AM
From: Dan Duchardt	Respond to of 5205

Allen, Does anyone know of caveats on this situation? I'm sorry to say so, but the answer is yes. The IRS has rather complex rules about recognizing gains and losses on offsetting positions. My understanding of those rules is somewhat limited, but I do know that it is still a fuzzy area because they are waiting for the Treasury Department to issue specific regulations. The best place I know of to get a read on the current state of affair is at cboe.com I suggest you download the booklet and read the section on Offsetting Positions. Also check out the tables in the Appendix. In particular, note the 85% reference at the bottom of page 16-17 Dom is right, but not everyone can limit their options trading to IRAs :( Dan

To: Allen Furlan who wrote (3409)	2/25/2002 3:21:56 PM
From: andydaoust	Read Replies (2) \| Respond to of 5205

Allen, When I was speaking about the LEAP covered call tax advantage, I was considering the position married. It would be married if the option was sold on the same day the stock was purchased. The position then has the tax implications of one unit. At expiration the stock would be sold if not assigned and the unit would be a long term gain or loss if held over one year. In your case, your net cost basis is $1.45 less commission. If AES ends above 2.5 in 2004 then you would have a long term gain of $1.05 less commissions. You would still have a long term gain if AES ends between $1.45 and $2.5 depending on commission if you sold the stock. If you kept the stock then the expired call would have been short and the gain would be short term on the entire premium. The thing with dealing with the IRS is to always default to giving them the most money when the area is grey. In your case, I don't know how the IRS would feel about splitting the stock position and the call into two separate taxable events. The rules are so complicated. Did you cover your naked calls on jnpr, brcd, brcm, or are you planning to hold them to expiration? Andy D