I've talked to a tax professional but got a very uncertain answer and can't find any examples online, only examples are of the option expiring worthless rather than in the money.
Example: 1 Bitcoin has been held for over a year prior to selling covered call Strike 40k, premium $2k, expiry 1 month from now. On expiration date the option is in the money and is called away.
I understand you pay 60/40 long/short term gains on the $2k premium. What I am not clear on is if the 40k you receive for the underlying that you have held for over a year is taxed at 100% long term or subject to the same 60/40 as the premium.
1256(f)(3)(c) Treatment of underlying property For purposes of determining whether gain or loss with respect to any property is ordinary income or loss, the fact that the taxpayer is actively engaged in dealing in or trading section 1256 contracts related to such property shall not be taken into account.
Above makes me think that the underlying is taxed as if it was sold as spot but another trader's tax professional thought that is supposed to apply only to the mark-to-market section, not to 1256 contracts overall.