Covered Call Impact on underlying stock

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newbee1
Posts: 59
Joined: Fri Feb 22, 2019 12:29 pm

Covered Call Impact on underlying stock

Post by newbee1 »

Hello Experts

I would appreciate your insights for the follow case

I bought 100 shares of ABC at $99/share on Jan 10th ,2020
On March 12th, 2021 Stock is at $120.
I sold CC for SP of $140 (OTM) with Strike Date of March 19th. CC expired and no assignment

Questions -

This CC was an unqualified CC since the Strike date was less than 30 days in the future.

1 . Did it reset the holding period clock of the underlying Stock as well ? What I mean is that ABC stock I own is now “effectively bought” on March 19, 2021 for Capital gains going forward ( even though I had bought these on Jan 10th, 2020)

2. What would be the outcome for the exact same scenario if I had bought the stock on June 10th , 2020 ?

I went thru a very useful fidelity site link but not able to understand this case clearly

Thanks
Topic Author
newbee1
Posts: 59
Joined: Fri Feb 22, 2019 12:29 pm

Re: Covered Call Impact on underlying stock

Post by newbee1 »

https://www.fidelity.com/learning-cente ... ered-calls

Excellent article. However, this does not answer my question below from what I could decipher.

thanks
venkman
Posts: 1338
Joined: Tue Mar 14, 2017 10:33 pm

Re: Covered Call Impact on underlying stock

Post by venkman »

From what I can tell, based on that Fidelity website, a non-qualified CC would cause the gains to be taxed as short-term (even if the stock had been held for over a year) IF the call got assigned and the shares were sold. But because it was an OTM call and did not get exercised, it doesn't affect the holding period.

If it had been an ITM call, the holding period would've been suspended as long as the call was outstanding, but it would not have reset the purchase date to the date the CC was sold.
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