Tax Treatment of Exercised Options: Equity Options
Chapters in this video
- 0:00 The core rule: no gain or loss on the option
- 1:00 Calls add, puts subtract: the cheat code
- 1:54 Carla the long call buyer exercises
- 2:58 The $300 option-loss exam trap
- 3:22 Riley the call writer gets assigned
- 4:27 Sam the put buyer and the symmetric writer side
- 5:43 The holding period brick wall
- 7:02 Rapid-fire exam recap
What this video covers
- Why no gain or loss is recognized on an equity option at exercise or assignment, and how the premium folds into the stock transaction instead
- The universal cheat code: calls ADD the premium to the strike, puts SUBTRACT the premium from the strike, for both buyer and writer
- How to classify the math as cost basis (when you are buying stock) versus sale proceeds (when you are selling stock)
- Long call exercised: strike plus premium paid equals cost basis of the acquired stock
- Short call assigned and long put exercised: how the same formula produces sale proceeds instead
- Short put assigned: strike minus premium received equals cost basis of the acquired stock
- The holding-period trap: the stock clock starts fresh the day after exercise or assignment, and the option's holding period never tacks on
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