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

To: andydaoust who wrote (3423)	2/26/2002 4:42:41 PM
From: Dan Duchardt	Read Replies (1) \| Respond to of 5205

Andy, I wish they would create rules that could easily be interpreted. I think doing options in the IRA might be best. We can certainly all agree on that. So far I have not had to fight my way through all this stuff in a tax return, but I may have to do some this year. I apologize if I came across as challenging your expertise. That was not my intent. I was merely stating my disclaimer to acknowledge my own limited experience with this stuff. I think the answers to your questions are in the "Short Calls" section on page 11; even though it is a subtopic of "One-Sided Equity Option Positions" it addresses covered calls. Short Calls 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 is outstanding. Similarly, gain or loss on the termination of the writer's obligation through closing the option other than by expiration or assignment is short-term capital gain or loss, regardless of the length of time the call is outstanding. However, if a call is assigned, the strike price plus the premium received becomes the sale price of the stock in determining gain or loss. The resulting gain or loss depends upon the holding period and the basis of the underlying property used to make the delivery to satisfy the assignment. It is possible that previously owned stock will be long-term and, thus, without taking into account the offsetting position rules discussed on page 13, may result in long-term capital gain or loss (20% maximum tax rate). Dan