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Old 03-26-2008, 12:19 AM
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Join Date: Aug 2007
Posts: 2
ESPP related tax question..(and covered calls)

#1.
I wrote some covered calls on my ESPP shares (qualified dispositions) in 2007. These calls got assigned. I guess I just need to add the premium to the total stock sale price and follow the regular process to split Ordinary Income and Long Term gain on this ESPP sale while reporting the taxes?
Here are the covered call details:
# of ESPP stocks = 1000 (purchase price= $10)
5/2/07- sold 10 covered calls, Expiration July/2007
7/20/07 - Got assigned and 1000 stocks sold at $17 each

So, I just need to enter long term capital gain in schedule D and ordinary income(15% discount) in 1040. Do I need form 6781 here? I assume these are qualified covered calls?? Please advice.

#2.
I bought back the covered calls (sold on ESPP stocks) at a loss. Do I just need to enter this as a long term capital loss in Sch D?
details:
# of ESPP stocks = 500
5/31/07- sold 5 covered calls, Exp Oct/2007
10/17/07- bought back these calls at a loss
Do I need to report any thing on form 6781 here?

#3.
I sold 10 naked calls (of the same company as ESPP stock but this time not a covered call but a Naked one) and bought them back on the same day at a loss. I guess this is not a Wash sale. Do I just need to report this as short term capital loss in Sch D?
details:
10/17/07- sold 10 naked calls
10/17/07 - bought them back(or closed) at a loss


When you look at #2 and #3 above, there are 3 activities on 10/17/07. Am not sure if FIFO/LIFO rule applies here in matching the transactions across #2 and #3.


In summary: I did enough research on the net on this. I was confused if I really have any Straddle situation above that may require form 6781 in any of 3 cases above. I also read that any capital loss in above situations requires the use of form 6781. Appreciate your inputs. I will still continue my research on this topic.



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