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Old 01-10-2014, 01:01 PM
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Stock options (selling puts)

I'm trying to estimate the effect of taxes on profits from selling puts. When you sell (write) a put, you create the obligation (if assigned) to purchase the underlying stock. For this obligation, you collect a premium.

So for example: I sell one contract of XYZ for .90, which immediately puts $90 in my pocket. I assume this is going to be subject to normal income tax, not capital gains. Is this a correct assumption?

Now, if the underlying stock remains such that I'm not assigned the stock, I keep the premium, and the option expires. However, if the stock drops below the strike price, I am likely to be assigned the stock, which means I'm buying the stock at significantly higher than today's price. If I immediately sell the stock (at a loss), do wash sale provisions negate the 'value' of the loss (say I lost $100 on the transaction, can I deduct the FULL loss, or do I offset the loss with the $90 premium?)?

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