Series 7

Derivatives - Tax Treatment of Options

How are gains made in the options market treated come tax time? The tax consequences of an options transaction depend in part on the tax status of the investor and may differ depending on the type of underlying commodity involved.

Tax rules are not the same for equity, index, currency and debt options. Here are some other taxation factors to consider:
  • Whether an option has been exercised, has expired or is still open
  • Whether the option is covered or uncovered
  • Whether the option represents a short or long position
Typically, a long option that has been exercised results in a capital gain or loss. One that has expired without exercise results in a capital loss of the premium.

A short option that has been exercised also results in a capital gain or loss. One that has expired without exercise results in a capital gain of the premium.



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