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Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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i am looking to sell covered call contracts on several thousand

Customer Question

i am looking to sell covered call contracts on several thousand shares of stock. the calls expire in 18 months. am i right that i will record the income for tax purposes associated with writing these covered calls when they expire in 18 months and not when i actually receive the money when the calls are written?

as a follow up: i am looking to buy add'l shares in the same company with the proceeds from writing these calls. if, at the end of the contracts, the shares value of drops relative to my purchase price (and I sell the shares to realize the loss), can I take this loss against the capital gain income from writing the covered call contracts?
Submitted: 6 years ago.
Category: Tax
Expert:  Lindie-mod replied 6 years ago.


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Expert:  Lev replied 6 years ago.

The call (either covered or not) is the right to buy shares at the strike price.

As for the writer - the sale of the call has no tax effect.

If the contract expires - the writer's gain is the premium received - and is recognized at that time - so you are correct.

If you purchase shares to cover the call - and do not sell shares - there is no capital gain or loss recognized. When you sell shares with the loss - you will recognize a capital loss at that time.

Your capital losses will generally offset capital gains realized during the same tax year.


Let me know if you need any help.