Short versus long-term capital gain if my shares are exercised

Discussion in 'Options' started by fencerd4, Mar 21, 2009.

  1. fencerd4


    This might be a no brainer. If I wrote covered calls at a strike price of 2.5 for Jan 2010 when the underlying stock is 70c and the stock spikes to $3 and I get exercised early. Would the underlying stock appreciation from 70c to 2.5 be subject to short-term or long-term capital gain?

    Is being forced to sell the stock at a premium and selling it myself at a premium the same thing to the IRS?

  2. 1) There is almost zero chance you will be assigned early.

    2) You did not supply enough information. Your sale price for the stock is now $3.20 (strike + premium). It is a long-term capital gain IF you bought the STOCK more than one year before you sold it (date of exercise).

    The option profit and/or loss is IGNORED by the IRS when the option is exercised.

  3. fencerd4


    thank you mark
  4. The answer to the question of whether the profit would be short term or long term would depend on how long you held the stock at the date of exercise. If a year or's long term. Otherwise, it's short term.