Tax Treatment of Expired (Lapsed) Options
Chapters in this video
- 0:00 Meet Carla and Riley in the tax trap jungle
- 0:50 Expiration date is the realization date
- 2:10 Why standard options stay short-term
- 2:41 LEAPS, the 39-month mutant exception
- 3:32 Writers always get short-term, no matter what
- 5:07 Exercising a LEAPS resets the stock clock
- 5:51 Rapid-fire exam recap
What this video covers
- Why the expiration date, not the purchase date, is the realization date for tax purposes when an option lapses
- Why standard listed options (roughly 9-month maximum life) almost always produce short-term capital gains or losses
- How a long call or long put that expires worthless creates a capital loss equal to the premium paid
- How a short call or short put that expires worthless creates a capital gain equal to the premium received
- Why LEAPS buyers can reach long-term capital gain or loss treatment by holding more than 12 months
- Why option writers are always locked into short-term treatment, regardless of how long the short position stays open
- Why exercising a LEAPS resets the stock holding period to zero on the day of exercise
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