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