Option Sells

[Donanita]

Client has option sales (not stock options) o 19203.55. Son is a stock broker and told me this is stock that is put up for sale but not sold at market price and has no basis. Option sales are reported as non reportable activity on broker sheet. Has anyone had this and is it reported on Sch D as a sale.

[Burke]

Yes. Options are traded on the stock market just as shares of stock. They can be sold at a gain or loss. One buys or purchases the option at a market price. So the buyer generally has basis. They can be allowed to expire, in which case the proceeds are zero (worthless) and there is a loss in the amount of the purchase price. There are two different types of options -- puts and calls. One is betting on appreciation, and the other is betting the other way -- that the underlying stock will go down. You need to know what he was actually doing. He might also have been buying on margin. These are reported on Sche D, and almost always are short-term transactions.

[DaveO]

If he has no basis he may be doing covered call writing where he is selling options on stock he owns.

[Donanita]

Thanks

If he has no basis he may be doing covered call writing where he is selling options on stock he owns.

That is what he is doing so the whole gains would be taxable.Just never had this.Had stock options but not calls.
Thanks again

[taxxcpa]

Call options

You can sell covered calls and you can sell uncovered calls. If you own 100 shares of X, you can sell one covered call. If you have a margin account and enough funds, you can also sell calls on stocks you do not own if you think the stock will stay below the strike price of the option. A stock may sell for $ 50. There may be strike prices of $ 45, $50 & $55.
If you sell a $55 call on a $ 50 stock, it has to go up to $55 plus the premium you got for selling it before you lose money. You can buy it back before the expiration date or wait until the expiration date and hope it stays below the strike price and expires worthless.

If you sell a covered call it will either expire worthless or if you don't buy it back by the expiration date, and the stock is above the strike price, your stock will be taken and will constitute a sale at the strike price.