Capital Loss on a covered call position

Jun 12, 2007 5 Replies

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nickra 19 years ago

Say I own 1,000 of XYZ and have for a decade or so ago. Big capital gain, even withthe lower rate. Now, say I write some ATM calls, 10, for 1 each let's say they expire in three months, same tax year. My stock goes from 100 to 105 by day of expiration. Instead of letting the stock get called away, I buy the options back for 5. Now that is a loss (offset by the gain in my stock, yes.) So, do I take a loss on buying the options back? Any effect on the tax status of the stock I own?

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Arthur Kamlet 19 years ago

You wrote some covered calls and bought them back to close out the position at a loss. Yes, that's a loss. Report it as short term loss on schedule D.

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Seth 19 years ago

Yes; unless you have other capital gains, only $3,000 of your $4,000 capital loss is deductible against ordinary income this year, the rest carries forward.

No; you bought and sold (not in that order) a different instrument entirely. Seth

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Arthur Kamlet 19 years ago

You wrote some covered calls and bought them back to close out the position at a loss. Yes, that's a loss. Report it as short term loss on schedule D.

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Seth 19 years ago

Yes; unless you have other capital gains, only $3,000 of your $4,000 capital loss is deductible against ordinary income this year, the rest carries forward.

No; you bought and sold (not in that order) a different instrument entirely. Seth

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Ron Peterson 19 years ago

Yes, you take a loss which doesn't affect the status of the stock you own.

-- Ron

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