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It is my understanding that if an investor owns a stock and sells a qualified covered call then dividends from the stock are still qualified. However, if an investor owns a stock and buys a put option to protect his position, then any dividends from the stock are qualified.

If an investor owns a stock and sells a qualified covered call against it and then hedges the call position by selling a put on the stock, are the dividends still qualified from the stock? Are there any unexpected tax consequences by selling the put? For example, will the straddle loss limit rule come into effect?

Thanks

Bob

  • In the first paragraph you are buying a put, in the second you are selling one. Can you please clarify the question? If you sell a put option it would be for shares you don't own so the dividends would not be relevant as you would not be collecting the dividends for those shares. – homer150mw Sep 6 '16 at 15:20
  • The situation, I am talking about is when you sell both a call and a put plus a long position in the underlying stock. – Bob Sep 6 '16 at 20:28
  • If an investor, in the US, owns shares in some stock and hedges the position by buying a put then I claim that any dividends from the stock are not qualified because he as hedged his position and his hedge is not a qualified cover call. – Bob Sep 6 '16 at 20:33
  • If you sell a put that does not affect the shares you own, selling a put obligates you to buy shares you don't own yet. That is unrelated to the dividend of the shares that you do own. – homer150mw Sep 6 '16 at 23:12
  • horner150nw you maybe right. However, check out this reasoning. The stock and the short call option is a hedge. The short put option hedges the short call position. The entire position forms a straddle and that straddle is not a qualified covered call. Therefore the dividends are not qualified. – Bob Sep 7 '16 at 0:06
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As far as I am aware, the stock can have "qualified dividends", which would normally be the case if the stock was listed in the US and you were able to trade options on it, and held them for 60 days period prior to the dividend being paid.

The options themselves are separate securities from the stock and do not pay, nor entitle you to dividends. The money received from or used to pay for the options would be treated as income from short term purchase and sales of securities (if less than 1 year). Long term, if the opening and closing of the positions was more than 1 year (or 60/40 if the options were on equity index futures rather than stocks).

  • Qual-div holding period (of 60 days) can be before and/or after ex-div date, which is effectively when you get the right to the dividend; record date is (now) 2 days later, and actual payment is usually a week or two after record but sometimes more. – dave_thompson_085 Mar 26 '18 at 0:19

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