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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)?

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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.

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