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Say I have 10000 shares of some stock X. Say 5000 of them were bought 2 years ago and the other 5000 were bought a month ago. These two batches would have different amount of gains and different tax implications if sold (long vs short).

Assume I have sold a covered call for X with amount 50 (half of the shares) and it eventually closed. Which batch of my 5000 stocks would be sold? When I open a covered call, I don’t see a way to configure this (using Fidelity).

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    Welcome to money.SE! Are you asking how to create an order with a specific broker? – Nathan L Apr 18 at 19:04
  • I was using Fidelity. Clarified that in the question. – Buğra Gedik Apr 18 at 19:07
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Long shares sold directly by the trader (or shares bought to cover a short position) default to FIFO unless the trader designates to his broker what shares are to be sold at the time of the trade.

Prior to expiration, through a random process utilizing a "wheel", the OCC determines who will be assigned. That is then passed onto the broker who may have an internal process who will be assigned. At expiration, all options expiring one cent in-the-money will be exercised and assigned (Exercise By Exception").

I question whether one can intercede in this process. The only way to find out is to call your broker and ask if you have the ability to designate which shares will be assigned.

The obvious way to avoid all of this is prepare two orders, cover the call and almost simultaneously (seconds later) sell the shares that you want sold (designation). This isn't the best way exit because the market can move against you in that brief time span and you'll take a small haircut on the B/A spread. A Buy/Write combo order (sell to close) is the preferable route but can shares be designated with a closing combo order? Again, ask your broker.

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    In googling around, I didn't find a categorical answer, but I did find that the Chicago Board of Exchange understands it's a common strategy for covered calls to sell specific identification (such that a proposed law to make them always FIFO is worth the effort of this press release): cboe.com/aboutcboe/government-relations/pdf/fifo.pdf – user662852 Apr 18 at 19:27
  • I guess I should ask Fidelity (my broker) about this. When selling stocks, it lets you identify the ones you want sold. But such identification does not exist for covered calls. – Buğra Gedik Apr 18 at 19:38
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    The CBOE link implies that one can designate the CC shares. The question is, does your broker provide that feature? Call them. – Bob Baerker Apr 18 at 19:59

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