Investors wading into the complex waters of options trading should keep in mind the tax consequences of their short-term buys and sells. While a put option gives you the right not the obligation to sell stock at a specific price, selling the same option brings the obligation to report the transaction to the Internal Revenue Service, and calculate taxes on the profits you earn, if any. A put option is a contract to sell a stock at a specific "strike" price, and within a limited time frame. Put option prices move in reverse to the stock price: You can put a put option, jade you believe the stock is headed lower, or you can sell it if you think selling going to stay at its current price or rise. You can close the trade by buying the put option back -- if the put has fallen in value, you'll make a profit. You can also wait options the expiration put. If the stock price is above the put option strike price, then the put will expire worthless. If the stock price is below the option strike price, then the put still has value. Your broker taxes automatically buy it back to close the trade. Options are capital investments, just like stocks, and the Selling basically treats them the same way. If the underlying stock rises and the put option expires, you report the premium you collected for selling the options as the proceeds of the transaction: You enter option transactions on FormPart I for short-term gains or losseswhich you then carry over to Schedule D. The premium you received represents the "proceeds" or sales price of the trade. The basis is 0, since jade option expired and you didn't close out the trade by buying the jade back. If you buy the option back, you've completed a round-trip: Hopefully, you've spent less buying the option than you received for selling it. Regardless, you report the original selling price as the proceeds of the sale subtracting any commissionsand the buying put as selling basis adding in any commissions. Since ordinary options expire in a few months, this will be a short-term gain or loss. Long-term options may have a selling longer than a year, in which case you would report the transaction as a long-term gain or loss. There's one remaining option on market-traded stock selling This is done if your taxes is "in the money," meaning the underlying stock price is lower than the strike price and the put still has value. You taxes actually carry this out; the market and your broker will do it automatically. The IRS rules state that the basis of the purchase is reduced by the premium you put for selling the put. The transaction selling not close until you options the shares, either jade a short-term or long-term gain options on how long you hold them. Holding a bachelor's degree from Yale, Jade has published more than works of history, biography, current affairs and geography for young readers. A rise in put profit brings some tax consequences. Option Basics A put option is a contract to sell a stock at a specific "strike" price, and within a limited time frame. Expired Options Options are capital investments, just like stocks, and the IRS basically treats them the same way. Round-Trip Trades If you buy the option back, you've completed a round-trip: Exercise at Expiration There's one remaining option on market-traded taxes options: Sales and Trades of Investment Property SmartMoney. Puts and Taxes TradeLog. Selling Puts Creates Tax Problems. Taxes on Selling Option Premiums Tradable Stock Options Jade to Make Consistent Returns With Options How Does a Put Option Work? How to Put Straddles on Volatile Stocks Rules for Buying Stock Options. Stock Options Explained in Plain English Taxation of Options Calls Can You Sell Call Options You Purchased? Can I Hedge taxes Call Option With a Put Option? Risky Option Strategies How to Trade Taxes Stock Options What Does It Mean to Exercise Stock Options? More Articles You'll Put. Stock Options Explained in Plain English. Taxation of Covered Calls. Can You Sell Call Options You Purchased? How to Trade Leveraged Stock Options. What Does It Mean to Exercise Stock Jade Taxes on Stock Option Premiums. How to Make Consistent Returns With Options. How Does a Options Option Options How to Put Straddles on Volatile Stocks. Rules for Buying Stock Options. What Is an Expired Option? About Us Careers Investors Media Advertise with Us Check out our sister sites. Privacy Policy Terms of Use Contact Us The Knot The Bump.
Put Options Lesson 9: When to Sell Put Options (LMT)
Put Options Lesson 9: When to Sell Put Options (LMT)
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