In general, in a covered call scenario, does any trade on the options contracts trigger a realization of capital gains on the underlying? I am not concerned about the reset of the holding period on the underlying.

Say, I have 100 AAPL stock with $1000 in unrealized gains, and I opened a short call option today. Then I closed the call option tomorrow for no gain no loss. Will this trigger a realized short-term gain on the underlying stock (i.e. a realized gain of $1000)?


If you sell a covered call, there are 3 possibilities:

  1. At a later time you buy the call back, closing your short call position. This could result in a capital gain or a capital loss.

  2. The call expires worthless. This would be a capital gain.

  3. You are assigned and you must sell your stock at the strike price.

The first two scenarios result in a short term capital gain (or loss) on the option transaction. You retain your stock along with your unrealized gain (or loss).

Only scenario (3) triggers a realization of capital gains on the underlying.

As an aside, short options receive STCG treatment even if they are held for more than a year.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.