stock options

[Koss]

Options

FEDUKE404 wrote:

There may have been a Form 1099-B????

Brokers don't issue 1099-B for options. I'm sure that's going to change, in in the year 2036 or something, but right now there is no 1099-B for option transactions.

FEDUKE404 wrote:

This is a completely different realm from buying/selling puts and calls, which can muck up cost basis and become a true headache.

If the client bought options in an account at Scottrade, those are put and call options. You are correct that puts and calls can affect the basis of the underlying stock. But in this case, there is no underlying stock, because, as you noted, the option was not exercised.

You are also correct that you use a zero sales price to report the transaction, because the option expired worthless.

BMK

[FEDUKE404]

Zero sale price

My limited understanding is that since he did not exercise the option, it became worthless i.e. zero "sales price" versus his original cost of option.

By definition short term loss????

There may have been a Form 1099-B????

(Your software may have a Q&A to guide you through the maze.)

This is a completely different realm from buying/selling puts and calls, which can muck up cost basis and become a true headache.

It's been a few years since I beat my head against the wall on these, but I think I'm close. At least the concept is not as mind-boggling as figuring out/tracking wash sales.

Good luck!

FE

[Koss]

Call Options

It's a short term capital loss.

The options expired worthless.

Client should be able to tell you the purchase date, cost of the option, and the expiration date.

Basis = cost of the option
Sales price = zero (expired worthless)
Date of sale = date of expiration

An option is a contract that gives the holder the right to buy 100 shares of stock at a specific price for a certain period of time.

For example, I might buy an option for $150 which gives me the right to buy 100 shares of XYZ stock at $25 per share at any time between now and the third Friday in April (the expiration date).

On the date I buy the option, the stock might be trading at $23 per share.

If the stock never rises above $25 before the expiration, then the option will expire, and I have lost the $150 that I paid for it.

On the other hand, if the stock price rises to $30 per share before the expiration, then I can exercise the option, and buy the stock for just $25 per share, even though everyone else is busy buying and selling it for $30 per share.

After I buy it for $25 per share under the terms of my option, I can either hold onto it, or I could turn right around and sell it for $30 per share...

And it gets a lot more complicated.

The expired option is actually the simplest case.

BMK

[oceanlovin'ea]

My client brought in 2 stock options from Scottrade. He said he had a loss because he paid for the option but the price never went up enough for him for him to purchase the stock. It is a very small amount of money.

But I have never really understood stock options so I am really at a loss with this.

Can someone give me a "for dummies" explanation please?

Linda, EA