Home » Tax Topics » Options » Option Expirations


Option Expirations

All stock options have an expiration date. If an option expires, then this closes the option trade and a gain or loss is calculated by subtracting the price paid (purchase price) for the option from the sales price of the option. It doesn't matter if you bought the option first or sold it first.

If you bought an option and it expires worthless, you naturally have a loss. Likewise, if you sold an option and it expires worthless, you naturally have a gain. If your equity option expires, you generated a capital gain or loss,  usually short-term because you held the option for one year or less. But if it was held longer, you have a long-term capital loss.

IRS Publication 550 page 57 features a table of what happens when a PUT or CALL option expires. The table is summarized below:

When a Put: If you are the holder: If you are the writer:
Expires Report the cost of the put as a capital loss on the date it expires. * Report the amount you received for the put as a short-term capital gain.

 

When a Call: If you are the holder: If you are the writer:
Expires Report the cost of the put as a capital loss on the date it expires. * Report the amount you received for the call as a short-term capital gain

 

* Please note that if you are the holder of a put or call option (you bought the option) and it expires, your gain or loss is reported as a short-term or long-term capital gain depending on how long you held the option.

  • If you held the option for 365 days or less before it expired, it is a short-term capital gain.
  • If you held the option for more than 365 days before it expired, it is a long-term capital gain.

However, if you are the writer of a put or call option (you sold the option) and it expires, your gain or loss is reported is considered short-term no matter how long you held the option.

Sounds simple enough, but it gets a much more complicated if your option gets exercised.

Learn More... Option Exercises and Stock Assignments

 

Please note: This information is provided only as a general guide and is not to be taken as official IRS instructions. Armen Computing Ltd. makes no investment recommendations and does not provide financial, tax or legal advice. Please consult your tax advisor or accountant to discuss your specific situation. You are solely responsible for your investment and tax reporting decisions, and you should carefully evaluate all information delivered to you by Armen Computing Ltd. and TradeLog. Not all information may be appropriate for all investors.