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Option Sales

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

When a Put: If you are the holder: If you are the writer:
Is sold by the holder Report the difference between the cost of the put and the amount you receive for it as a capital gain or loss.* This does not affect you. (But if you buy back the put, report the difference between the amount you pay and the amount you received for the put as a short-term capital gain or loss.)

 

When a Call: If you are the holder: If you are the writer:
Is sold by the holder Report the difference between the cost of the call and the amount you receive for it as a capital gain or loss.* This does not affect you. (But if you buy back the call, report the difference between the amount you pay and the amount you received for the call as a short-term capital gain or loss.)

 

* Please note that if you are the holder of a put or call option (you bought the option) and you sell it before 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 you sold it, it is a short-term capital gain.
  • If you held the option for more than 365 days before you sold it, it is a long-term capital gain.

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

Learn More... Option Expirations

 

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.