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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: Joey Smith who wrote (7515)	5/26/1998 3:01:00 PM
From: VincentTH	Read Replies (1) \| Respond to of 14162

Jeoy, The short answer is No, you only realize a cap gain when the position is closed (expire worthless, exercised or closed). The long answer is to get Pub 550 from the IRS site. There is a new version for 1997. Things are getting more an more complicated.

To: Joey Smith who wrote (7515)	5/26/1998 3:10:00 PM
From: Greg Higgins	Read Replies (1) \| Respond to of 14162

Joey Smith writes: 1). Do I get taxed for the premium revenue I receive right away? No. Taxes don't become due until the position closes. Interest income on credit positions is taxable though. 2). If I decide to buy back the call at any time, is this treated as a normal capital gains a-la stock securities? It's normally a short-term trade. It could be long term if you're using LEAPS, but if you voluntarily close the position, it's independent of the underlying security. 3). If I have to sell the shares at the strike price, is this treated as a normal capital gains? The premiums are added to the sales amount and the whole kit-n-kaboodle becomes taxable using the stock's capital gains rate. So yes. 4). What happens if I let the option expire worthless? Do I have to pay capital gains on the entire premium I received since this is my gain? Yes. This is normally a short term gain. (But can be long using LEAPS). P.S. I'm not an accountant, nor do I play one on TV .