# Ratio Write and Income Taxes

Imagine that an investor owns 500 shares of the XYZ stock with a current value of 50 and a cost basis of 30. He then sells 5 call contracts with a strike of 65 for 2 dollars. Latter he buys back the calls for 3 dollars. I think we agree that this is a qualified covered call and therefore when be buys the call back he can deduct the loss.

Now, consider this situation. An investor owns 475 shares of the XYZ stock with a current value of 50 and a cost basis of 30. He then sells 5 call contracts with a strike of 65 for 2 dollars. Latter he buys back the calls for 3 dollars. Is this a qualified covered call? Does the straddle loss limit rule apply?

Note: I live in the United States.

Bob

• The issue is the wording of your question. In the first paragraph, you stated that the investor owned 500 shares and sold 5 calls. In your second paragraph, you wrote that he "owns 475 shares of the XYZ stock... and he then sells a call with a strike of 65 for 2 dollars". To me, "a" call is ONE call, even more so since you did not write "and he then sells '5 CALLS' with a strike of 65 for 2 dollars". So now it's that you meant long 475 shares and short 5 calls? (posted this in wrong place - it's a reply to your comment below). – Bob Baerker May 20 '18 at 23:41
• @Bob Baerker I see your point and you are 100% right. I meant 5 short calls. I will update my post. – Bob May 21 '18 at 0:09