Wiki Selling TSLA Options - Be the House

[ReddyLeaf]

Curious as to what you all think... are we heading for another week of Friday $850? This morning with the BTC excitement I thought maybe not, but as the day progressed it looked more and more like the same old same old.

I'm positioned well if we stay in the range. It's hard because I feel like I should DO SOMETHING but unless there's a big move one way or the other, best for me is likely to just do nothing for a few more days.

Just my guess, but......just below $860. Look at max-pain.com
Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

 

[Chenkers]

Just my guess, but......just below $860. Look at max-pain.com
Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

The actual Call and Put volumes are pretty even at the moment with Puts not really in the majority until $840 and Calls above $850. So I'd say they would be happy with anything in between $840 and $850 at this stage.

I don't mind it for this week as it will let me close out the last of my older covered calls. After this week it would be great to see another run up but its hard to anticipate what could spark it.

 

[ammulder]

Just my guess, but......just below $860. Look at max-pain.com
Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

Well, when I look here: Stock Option Max Pain

It shows calls outnumbering puts starting at $850. That number seems like a black hole lately, sucking all towards it...

 

[ZeApelido]

I see varying answers to this in google searches so maybe someone here knows the answer wrt to covered-call taxation.

I'm going to sell OTM covered calls against stock positions that quality for long term capital gains.

1. If the call ends up ITM and the shares assigned, then the premium gets rolled in with the sale of the shares and are effectively taxed as long term gains.

2. If the contract expires worthless (or repurchased) and the contract was open for less than a year, then the premium will be taxed as a short term capital gain.

3. If the contract expires worthless (or repurchased) and the contract was open for more than a year, then the premium might be taxed as a long term capital gain. Or short term. I've read conflicting statements.

I'm quite sure of #1 is true, pretty sure #2 is true, and no idea on #3.

For instance if I decided to sell covered calls with March 2022 expiration, and the calls expire worthless next year (open over a year), how will they be taxed?

 

[SN_8]

I see varying answers to this in google searches so maybe someone here knows the answer wrt to covered-call taxation.

I'm going to sell OTM covered calls against stock positions that quality for long term capital gains.

1. If the call ends up ITM and the shares assigned, then the premium gets rolled in with the sale of the shares and are effectively taxed as long term gains.

2. If the contract expires worthless (or repurchased) and the contract was open for less than a year, then the premium will be taxed as a short term capital gain.

3. If the contract expires worthless (or repurchased) and the contract was open for more than a year, then the premium might be taxed as a long term capital gain. Or short term. I've read conflicting statements.

I'm quite sure of #1 is true, pretty sure #2 is true, and no idea on #3.

For instance if I decided to sell covered calls with March 2022 expiration, and the calls expire worthless next year (open over a year), how will they be taxed?

Based on my own internet research, my understanding is that profit from selling options is considered a short term gain regardless of when the position was opened. But I'm not an expert and would appreciate confirmation as well.

 

[UltradoomY]

You make the credit (income) from selling a C/P now so it is taxed as Short term.
The only possible differentiator is if you sell a CC and the underlying shares are currently short term but are held over a year when assigned - then the assigned part of the sale converts to long term.
Selling the C/P is always taxed as short though because you make that money now. Can always be a balancing act of gains vs. losses at the end of the year on your statement though.
(not an accountant/ not financial advice)

 

[juanmedina]

one thing to add is that if you sell weekly call options your shares holding period gets reset. I can't find the link but it was on another thread.

 

[ReddyLeaf]

Well, when I look here: Stock Option Max Pain

It shows calls outnumbering puts starting at $850. That number seems like a black hole lately, sucking all towards it...

Agreed. Looks like there’s been a $10 drop since I looked yesterday. Maybe even more later today?

 

[SN_8]

one thing to add is that if you sell weekly call options your shares holding period gets reset. I can't find the link but it was on another thread.

That's not my understanding based upon the following:

"Writing an at-the-money or an out-of-the-money qualified covered call allows the holding period of the underlying stock to continue. However, an in-the-money qualified covered call suspends the holding period of the stock during the time of the option’s existence."

Tax Implications of Covered Calls - Fidelity

In short, the holding period may be suspended in some cases, but it does not reset.

 

[MP3Mike]

That's not my understanding based upon the following:

"Writing an at-the-money or an out-of-the-money qualified covered call allows the holding period of the underlying stock to continue. However, an in-the-money qualified covered call suspends the holding period of the stock during the time of the option’s existence."

Tax Implications of Covered Calls - Fidelity

In short, the holding period may be suspended in some cases, but it does not reset.

But you are missing part of the definition. That applies to a qualified covered call.

A qualified covered call is a covered call with more than 30 days to expiration at the time it is written and a strike price that is not "deep in the money." The definition of "deep in the money" varies by the stock price and by the time to expiration of the sold call.

So all covered calls that have less than 30-days remaining on them are non-qualified:

Covered calls that are NOT qualified
Covered calls that do not meet the definition of a qualified covered call generally are subject to the tax straddle rules, which are intended to prevent taxpayers from deducting losses before offsetting gains have been recognized. Positions are considered to be "offsetting" if they "substantially diminish" the risk of loss on another position.

If a multiple-part position is subject to the tax straddle rules, the consequences include the following:

• If a non-qualified covered call is sold against a stock position that was held less than one year, then the holding period for that stock is terminated.
• If both the stock and covered call are closed at the same time, then the net capital gain or loss is treated as short term.
• If the call is closed first, then a new holding period for the stock begins on the day that the covered call is closed.
• No current deduction for losses to the extent of the unrealized gain at the end of the taxable year.

 

[ZeApelido]

But you are missing part of the definition. That applies to a qualified covered call.



So all covered calls that have less than 30-days remaining on them are non-qualified:

So anyone who has sold covered calls against their shares which have been held for less than 1 year have their shares' "start date" essentially reset to 0? I'm assuming that's happened to people here before, can you confirm?

 

[SN_8]

But you are missing part of the definition. That applies to a qualified covered call.

So all covered calls that have less than 30-days remaining on them are non-qualified:

Thanks. I appreciate the important clarification/correction. I tend to write shorter term calls in my IRA and longer term calls in my taxable account for this reason.

 

[LN1_Casey]

one thing to add is that if you sell weekly call options your shares holding period gets reset. I can't find the link but it was on another thread.

It does not.

I sold weekly covered calls against my long holdings of my Tesla Shares all through November until they were called away in December. Still Long term tax on them, not short, though the proceeds were short term gains. So even though I sold for a strike of $540, the option gained $6, and that was taxed as short gain, the remaining profit of $49k (minus cost basis) was long term.

 

[SN_8]

It does not.

I sold weekly covered calls against my long holdings of my Tesla Shares all through November until they were called away in December. Still Long term tax on them, not short, though the proceeds were short term gains. So even though I sold for a strike of $540, the option gained $6, and that was taxed as short gain, and the remaining profit of $49k (minus cost) was long term.

That seems logical but how do we reconcile that with @M3PMike 's comment and the Fidelity link? Like I said, I've been cautious about this in my taxable account...

 

[LN1_Casey]

That seems logical but how do we reconcile that with @M3PMike 's comment and the Fidelity link? Like I said, I've been cautious about this in my taxable account...

The only time the qualified covered call is mentioned is when it's coinciding with a straddle play. I did not ever do straddles, but I'm also aware that said straddles can use shares you don't actually own. You're using a promise of future shares off a call/put/LEAPS somewhere down the line.

I was very, very simple. I had 78 shares before the split, and thus didn't have enough shares to even think about doing calls against them for over a year. Then post split, I had roughly 1/2rd of my shares long term, and also had 300-something, so I started to sell weekly OTM calls against them for cash as I was preparing to buy my car. Eventually the call went ITM, the 100 shares left my account, but were still considered long term because I actually owned them, and had actually owned them for more than a year.

I have had this discussion before, in other threads. No where in the tax code is it mentioned that selling OTM covered calls resets the time of holding the shares, except when talking about straddles. It's a pretty simple rule to forget to mention anywhere--"selling a (less than monthly) covered call resets your holding period for shares."

 

[juanmedina]

It does not.

I sold weekly covered calls against my long holdings of my Tesla Shares all through November until they were called away in December. Still Long term tax on them, not short, though the proceeds were short term gains. So even though I sold for a strike of $540, the option gained $6, and that was taxed as short gain, the remaining profit of $49k (minus cost basis) was long term.

If that is true that would be awesome because I am been worried about loosing my shares and having to pay a bunch of taxes.

 

[ZeApelido]

The only time the qualified covered call is mentioned is when it's coinciding with a straddle play. I did not ever do straddles, but I'm also aware that said straddles can use shares you don't actually own. You're using a promise of future shares off a call/put/LEAPS somewhere down the line.

I was very, very simple. I had 78 shares before the split, and thus didn't have enough shares to even think about doing calls against them for over a year. Then post split, I had roughly 1/2rd of my shares long term, and also had 300-something, so I started to sell weekly OTM calls against them for cash as I was preparing to buy my car. Eventually the call went ITM, the 100 shares left my account, but were still considered long term because I actually owned them, and had actually owned them for more than a year.

I have had this discussion before, in other threads. No where in the tax code is it mentioned that selling OTM covered calls resets the time of holding the shares, except when talking about straddles. It's a pretty simple rule to forget to mention anywhere--"selling a (less than monthly) covered call resets your holding period for shares."

Ok so you had 1/2 of your shares short term. Did you sell weekly OTM calls against those too or only the shares that were already long-term?

 

[LN1_Casey]

Ok so you had 1/2 of your shares short term. Did you sell weekly OTM calls against those too or only the shares that were already long-term?

I only sold against my long term holdings, as I didn't want to risk paying the higher tax if they were called.

There may have been a slight chance a small handful of shares (5 or so) were short term in a CC once or twice, but I can't verify that. I just know all my shares I currently own that I've had for more than a year are still considered long term in my account, and the gain dates of all of them are as they were when I bought them.

 

[LN1_Casey]

If that is true that would be awesome because I am been worried about loosing my shares and having to pay a bunch of taxes.

This has been my experience selling weeklies against long term shares. I am not a tax attorney, of course, and again--I did very basic option selling, as basic as you can get, so if you're doing things more complex like using LEAPS to sell CC's, it may not pertain to you the same.

#Standard Disclosure

 

[ZeApelido]

I only sold against my long term holdings, as I didn't want to risk paying the higher tax if they were called.

There may have been a slight chance a small handful of shares (5 or so) were short term in a CC once or twice, but I can't verify that. I just know all my shares I currently own that I've had for more than a year are still considered long term in my account, and the gain dates of all of them are as they were when I bought them.

Thanks for clarifying.

I don't think there is any issue with shares that are already classified as long-term, but only with selling calls against shares that were still short-term at the time. The claim, I believe, is that the counter for those shares would get reset to 0.