Tax Treatment of Closing Transactions
Chapters in this video
- 0:00 What a closing transaction actually means
- 0:38 Carla the customer: long holder formula
- 1:11 Riley the rep: short writer formula
- 2:18 The haunted vase trap: writers can lose on closing
- 3:16 Sam the supervisor: standard options and short-term character
- 3:57 LEAPS buyers and the 12-month rule
- 4:36 LEAPS writers never get long-term treatment
- 5:23 Rapid-fire exam recap
What this video covers
- How to calculate gain or loss for a long option holder: sale proceeds minus purchase price
- How to calculate gain or loss for a short option writer: opening premium received minus closing buyback price
- Why a closing purchase by a writer can produce a loss when the buyback price exceeds the original premium received
- Why standard options are almost always short-term on closing for both buyers and writers
- What Long-Term Equity Anticipation Securities (LEAPS) are, and why the 12-month holding period matters for buyers
- Why LEAPS writers never receive long-term capital gains treatment, regardless of how long the position is held
- How to spot exam questions that mix up buyer and writer formulas, or incorrectly assign long-term treatment to writers
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