Few options questions

**KTP** · 04-01-2014, 12:50 PM

Originally posted by Nika View Post

Options and taxes.

If I buy an option within 30 days of selling a stock to harvest a loss, I will violate a wash rule. So it looks like buying and selling options is treated same way as a buying and selling a stock.

So...

1) What if I hold an option for more than a year, and than exercise? Can I pay only long term capital gains on that profit?

Example, bought MAR January 2016 call, 52.5 strike for 6.00
I intend to exercise it come Jan 16. Can I qualify for long term capital gains?

What if I sell that option after holding it over a year? Will than be capital gains?

2) Is there an app where I can enter my calls and track them at a glance on my phone that DOES NOT require you to log in?
I bookmark whatever calls I want to watch in Optionhouse, but it logs me out all the time. Annoying.
Google or yahoo finance I have to go, find the call, each time and than it will reset to the next expiring one if I refresh. A lot of steps, and I can only check one at a time. (plus, it is really inaccurate).

Hi Nika,

I think I can answer #1

When you exercise a call option the holding period resets to the date you acquire the underlying stock, no matter how long you have held the option itself. If you sell the option before the expiration date (not exercising it) the gain/loss will either be considered short term or long term depending on if you held the option contract for less than a year or more than a year. Obviously you can only have long term gains on options with strikes farther out than a year from when you purchase them.

I am pretty sure I have that correct.

**Nika** · 04-01-2014, 01:57 PM

KTP, by re-setting the clock, do you mean for future stock sale?

If I exercise that option and MAR, for example is at $80 a share in 2016. Than

$8,000 - $5,250(stock price) - $600(cost of the option) - $15.4(commission) = $2,134 profit

Exercising the option does not equal to realizing profit, right? Until I sell that stock, the profit is unrealized? So I won't owe taxes on it that year, but will need to hold the stock for at least a year after, in order to qualify for long term gains?

**KTP** · 04-01-2014, 02:56 PM

Originally posted by Nika View Post

KTP, by re-setting the clock, do you mean for future stock sale?

If I exercise that option and MAR, for example is at $80 a share in 2016. Than

$8,000 - $5,250(stock price) - $600(cost of the option) - $15.4(commission) = $2,134 profit

Exercising the option does not equal to realizing profit, right? Until I sell that stock, the profit is unrealized? So I won't owe taxes on it that year, but will need to hold the stock for at least a year after, in order to qualify for long term gains?

Yes, you have it correct. You would only owe taxes if you sold the option early for a profit or if you did a cashless exercise where you exercise the option and sell the stock in one transaction. What happens in your scenario is your cost basis on the MAR stock is $58.50 when you go to sell it later on (then you will pay the $21.50 in capital gains, either long or short depending if you hold it for a year after the exercise date). This assuming the stock is still $80 when you sell it. If it had dropped back to $58.50 then you would owe no tax.

Few options questions