If you're new to options trading, you may be wondering how those trades are taxed. Here's a rundown of some potential tax pitfalls with options strategies.

Taxes for investors
1. Employee stock options
2. Equity options
Long Options (buy) | If you close the position before expiration | If you exercise the option | If the option expires |
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Long Call | The holding period of the option determines if it's taxed at short- or long-term capital tax rates. | • Exercising a call option increases the cost basis of the stock that is purchased. • There is no taxable event until the stock is finally sold. • Once sold, the holding period of the stock determines if the capital gain or loss is short- or long-term. | The holding period of the option determines if the capital loss is short- or long-term. |
Long Put | Same as above. | • Exercising a put option reduces the amount realized from the sale of the underlying stock by the cost of the put. | Same as above. |
Short Options (sell/write) | If position is closed before the expiration | If the option is exercised (assigned to you) | If the option expires |
---|---|---|---|
Short Call | Regardless of holding period, the capital gain or loss is always considered short-term. | • The capital gain or loss is treated as short- or long-term depending on your holding period for the stock. • The amount you received for writing the option is added to the amount received from the sale of the stock. | Report the amount received for writing the option as a short-term capital gain. |
Short Put | Same as above. | •Your holding period for the stock begins on the date you buy it. • If the put option is exercised and you buy the underlying stock, decrease the stock's cost basis by the amount received for writing the option. | Same as above. |