I’ve got a long term (many years) stock position. I’ve been writing covered calls against it for the past few years with expirations in Jan, which are typically over a year+ away and always quite a bit out of the money (OTM). I would typically have a gain on the option, either expired OTM or roll it for a profit (buy to close) and then repeat with new expiration and (usually) higher strike. So in this case I would treat it as a short term capital gain.
But this year the stock got ahead of me and I had to roll the option for a loss (when it was in ITM). Do the wash before straddle guidelines mean that I defer the loss and adjust my basis? And is this independent of the whether this is a qualified covered call?
I’ve looked at the USC and regulations structure and wording. It appears that in this case, being a qualified covered call, isn’t relevant.
The direct question: Is the common practice of rolling covered calls for income give you short term gain in the hoped full case but basis adjustment in the case of a loss … even if they are “qualified” covered calls.
I’ve searched the internet, bought/read the Fairmark book and no where have I found a straight forward answer to what seems like a common trading strategy. It shouldn’t be this hard! 🙂