I have friend who is using the covered call options. Some time these covered calls are near assignment and then my friend rolls these calls with higher strike price.
What are the tax implications ?
Income or loss is recognized when the short call is closed (buy to close), it expires, or the short call is assigned.
If the call expires worthless, the premium received is considered a short-term capital gain regardless of the length of time that the position was open.
If the short call is closed prior to expiration (BTC), the capital gain or loss is short term regardless of the length of time that the position was open.
If assigned, the strike price plus the premium received is sale price of the stock for determining profit or loss and it will be long or short term, depending on the holding period of the stock.
A complication in this is tax straddle rules which are designed to prevent taxpayers from deducting losses before offsetting gains have been recognized. These apply to non-qualified covered calls.
A qualified covered call is a covered call with more than 30 days to expiration when written and a strike price that is not "deep in the money." What "deep in the money" is depends on the stock's price and the time until expiration. If the covered call is deemed non qualified, it suspends the holding period of the stock while the short call is open.
Here's an article about Qualified and Unqualified Covered Calls