Option Taxation And Margin Requirements - Protective Puts

An investor who has purchased a protective put on a stock held less than 12 months will cap the holding period for that stock at 12 months and will have a short term gain or loss on the sale of the stock. If the stock was held for more than 12 months before purchasing the put, any gain or loss will be long term. Married puts purchased on the same day as the stock will not automatically create a short-term gain or loss for the stock so long as the puts are identified as a hedge or as married puts when the order is executed. If the put expires, the put’s premium is added to the stock’s cost base.



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