President Obama has brought to the forefront the issue of taxes as tax major part of his economic stimulus package. With that in mind, I thought it appropriate to discuss some of the tax issues that face covered call writers. First and foremost, let me state the obvious: I am not a tax expert. However, I do make every effort to be as informed as possible on issues that effect my hard-earned money. Under the current IRS regulations, both stock and stock options are considered options assets, and any gain on their sale is options. If the stock or option is held for less than a yearthen short-term capital gains STCG apply. For stocks, holding periods can be affected when selling deep in-the-money strikes. This discussion is beyond the scope of this article and consultation with your tax advisor is appropriate. Since we sell predominantly 1-month options, short-term capital gains rates would apply in all non-sheltered accounts. As a matter of fact, most stock options have a duration of nine months or less, so tax rates will usually be at the short-term rates. This is an increase in the value of as capital asset, such as a stock or an option, that gives it a higher worth than the purchase price. It must be claimed on income taxes in non-sheltered accounts. With that in mind, here are three possible scenarios that may occur after the sale of the option:. As in example 1, above, the acquisition date will be LATER than the sales date. The option premium is added to the strike price received, less commissions. If the stock has been held for less than one year, the entire transaction will be treated as short-term. If the stock had been held for one year or morethe entire transaction will be treated as long-term as the option holding period is ignored. The specific information referenced above can be found in IRS Publication entitled Investment Income and Expenses, pages 57 — I avoid these tax issues by trading covered call stock options predominently in tax-sheltered accounts. The only exception is an account I set up specifically to neutralize a negative cash flow property I own in Florida. Last year I wrote a three-part series explaing how I do this. Here are the links to those articles:. Owen Sargent, CPA osargentcpa aol. The chart patterns show a definite improvement with general market tone. We can call this news encouraging but not conclusive. Here are the charts:. This is a near term gauge of economic performance. The industrial base is on track to post trading worst quarterly performance in tax years. Treasury and mortgage-backed securities in hopes of energizing the housing industry. I have asked my web team to enhance this site based on many of your great suggestions. I welcome all comments and suggestions in this regard. I joined a few days ago and can be followed at this link:. Finally, many of you have asked about my new book. Significant progress has been made but there are a few changes I need the publisher to make before I give my final approval. Treatment you see all the charts and calculations, the challenge will become crystal clear. To send us an email, contact us here. Subscribe to trading e-mail newsletter or RSS feed to receive updates. Contact us by phone at Additionally you can also find us on any of the social networks below:. Let us know when your book is available, would like to purchase as quickly as available. This weekend I went through the IBD list for the first time. I picked 5 stocks. Can you tell me how I did. Thanks for any help you can give. You are doing absolutely great! Welcome to the world of Blue Collar investing. You selected 5 great performing stocks…congratulations. For a slightly tricky reason one of these actually does not belong on our watch list. After an incredible up-day today, there are a few things I consider if planning to sell a cc tomorrow. One that went up slightly would be one of my top choices. Then I would look for a stock whose price is between 2 strikes rather than near a strike. The reason for this is that although the last two weeks have resembled a bull market, the overall tone is still that of a bear market and I-T-M strikes would be my preference. Here are the calculations:. We are guaranteed a 1-month return of 2. It is 1-hour before trading stops on Tuesday. We are guaranteed a 3. Then I sold the 45 covered call option. Today the stock is around Sould I buy back the option and why? I would not buy back the option at this time. You originally sold an O-T-M strike which has only time value. You would be paying more to buy back the option than the original option sale. Since this is not an expiration Friday exit strategy, this is not money well spent. On or near expiration Friday, evaluate for a possible roll out or roll out and up if the share price is still above the strike. Prior to that, I found myself settling for consolidating sideways patterns and selling I-T-M strikes. Here are a few equities with uptrending EMAs:. From time to time we will hear a financial term that we are not familiar with. One of the weeknesses of stations like CNBC is that they speak to seasoned investors who live the Wall Street life. Too often, these terms are not defined or explained. A free website that that will define most of these terms in an treatment to understand manner is Investor Words:. You may want to bookmark this site and have easy and quick access to financial terms. Whenever I find a site, particularly a free one, that can facilitate our investment strategies, I will publish it on these comments links of my most recent article. Mail will not be published Required. You can use these tags: Notify me of followup comments via e-mail. You can also subscribe without commenting. Optionally add an image JPEG only. Site Disclosure Statement Glossary Sitemap Timeline. Members Log In About Us Glossary for Covered Call Writing Free Resources including Ellman Calculator Ask Alan Training Videos Free Training Videos Events Calendar Facebook FAQ. The Blue Collar Investor Learn how to invest by selling stock options. Covered Calls Beginners Corner — Cash-Secured Puts The Blue Hour The Blue Hour For Premium Members. Tax Treatment of Covered Call Writing in Non-Sheltered Accounts. Short-term versus long-term capital assets: What is a Capital Gain?: Rules for Covered Call Writers: With that treatment mind, here are three possible scenarios that may occur after the sale of the option: Here are trading links to those articles: Here are the charts: VIX as of Banking Industry as of About Alan Ellman Alan Ellman loves options trading so much he has written four top selling books on the topic options selling covered calls, one about put-selling and a sixth book about long-term investing. Alan is a national speaker for The Money Show, The Stock Traders Expo and the American Association of Individual Investors. He also writes financial columns for both US and International publications along with his own award-winning blog. He is a retired dentist, a personal fitness trainer, successful real estate investor, but he is known mostly for his practical and successful stock option strategies. Connect With Us To send us an email, contact us here. Additionally you can also find us on any of the social networks below: A Key Component to Successful Long-Term Investing What is the Best Time to Execute Our Trades? Evaluating the Performance of our Mutual Funds and Financial Advisors Reverse Splits and Unreliable Options Chains GAAP versus Non-GAAP Earnings: Challenges of Fundamental Analysis. Hi Pat, You are doing absolutely great! Alan, FDO is on the list of stocks that report same store monthly sales. Here are the calculations: Tax course all calculations need to be re-checked prior to making any trades. Don, Thus far, this investment is making you look like a genius! Keep up the good work. Here are a few equities with uptrending EMAs: AAP BWLD NFLX PZZA STAR SVR Having a strong watchllist is the backbone to successful investing and maximizing returns. A free website that that will define most of these terms in an easy to understand manner is Investor Words: Subscribe Here - Have the latest blog articles sent to your inbox. Subscribe to this articles Comments via RSS Feed. Learn how to take a Screenshot so you can add it to your comment. Leave a Reply Click here to cancel reply. July 15, 8: Washington DC Chapter AAII- Summer Workshop. A Key Component to Successful Long-Term Investing May 20, The New Stock Market- Algorithmic and High Speed Trading January 15, Options That Expire Weekly and Conventional Expiration Cycles September 26, Short Selling: Positives and Negatives January 30, The CBOEs Volatility Index VIX September 11, Penny Pilot Program October 29, MarioG Alan, Added missing image to my post Just MarioG Alan, Just noticed the following This week's 8-page report. Recommended Investing Links DR. Eric WIsh's Wishing Wealth Blog. 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The wealth of Joey Donner is clearly a connection between the two contexts.
This has happened all over Europe and most recently in Turkey, under Ataturk.
She would capture his moodiness and his awkwardness around women and yet enhance his appeal a little.