Why do I have to pay taxes on options premium?

Discussion in 'Options' started by noob_trad3r, Aug 4, 2009.

  1. If I paid 1000 dollars for stock and I recieve back from a covered call 200 dollars why is it subject to taxes?

    Technically I just retuned 200 dollars of capital investment back to myself and only paid 800 dollars for the stock not 1000 dollars.
  2. Its exactly the same thing...

    If you end up selling the stocks for 1000$, then its either:

    a) you paid 1000 and sold 1000$ so 0 capital gain on that. But you sold calls for 200$ and "bought" them back at 0$ so its 200$ capital gain

    b) Its also like having paid 800$ for the stock and selling it 1000$, guess what, 200$ capital gain...

  3. No, that is not 'technically' what you did. That may be equivalent, but it is not what you did.

    You own stock.

    You sold one call.

    To the IRS, those are two separate trades - unless you are assigned an exercise notice on the call.

  4. You pay taxers on capital gains. Plain and simple.

    What are you gains and losses in your example ???
  5. heech


    That actually brings up a different question I have.

    I know futures are taxed at 60/40 (long-term versus short-term) capital gains. What about options on futures?

    Nevermind: answer is... yes, options on futures are also 60/40.