Series 4

Option Taxation And Margin Requirements - Taxation Of Options

An investor who purchases a call or put that expires worthless will have a short-term capital loss. An investor who purchases long-term LEAPS (Long Term Equity Anticipation Securities), which have a term of up to 39 months that eventually expire, will have a long-term capital loss. The writer of both LEAPS and traditional options that expire worthless will have a short-term capital gain.

Example:

An investor buys 10 FGH May 40 calls at 1. If at expiration, FGH is a 37 and the investor allows the calls to expire, the investor will have a $1,000 loss. Alternatively if the investor who sold the 10 FGH May 40 calls at 1 allows the calls to expire, the investor will have a $1,000 capital gain.

Series 4 exam review



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