Tax question?

Discussion in 'Taxes and Accounting' started by Dummkopf, May 7, 2004.

  1. Dummkopf


    Im kinda new at trading options, and I have a tax question. I bought 50 3 months calls of company XYZ with a strike price of $20 at a cost of $7,000. XYZ was trading at around $20 at the time the calls were bought. Near expiration XYZ was trading at $30.

    Rather then sell these calls, and incur a $43,000 capital gain, I exercised these calls, and now own 5000 shares of XYZ.

    My question is: What is my basis for these 5000 shares? Is it $20 a share - the exercise price? But what about the $7000 cost of these calls - $1.40 per share. Can the $1.40 be added to the $20 resulting in a $21.40 basis?

    Thanks in advance!
  2. Yes, just as you surmized, $21.40 per share is the tax basis for those shares. When you exercise the cost of the option is added to the exercise price.
  3. Dummkopf


    Thanks! That's what I thought. I just needed confirmation.