Tax Treatment of Closing Transactions

What this video covers

• What a closing transaction actually is: a long holder selling, or a short writer buying back, before expiration
• The gain or loss formula for a long option (sale proceeds minus purchase price) versus a short option (premium received minus closing purchase price)
• Why standard options are almost always short-term, since they expire in under nine months
• The golden rule that option writers are always taxed short-term, no matter how long the position stays open
• How LEAPS create the one exception: buyers who hold more than 12 months before closing qualify for long-term capital gains
• The classic exam trap that a closing purchase by a writer can absolutely produce a loss when buyback cost exceeds premium received
• Why a LEAPS writer who closes after 18 months still books a short-term result