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Metadope,

If you buy a LEAPS equity call option, hold it for over a year, and do not establish an offsetting position during that year, any gain or loss will be a long-term capital gain or loss.

If you buy a LEAPS nonequity call option, such as a cash-settled option based on a stock index, it is subject to special "section 1256 contract" rules. These rules require the position to be marked to market at the end of the year and 60% of any gain or loss will be long-term and the other 40% short-term.

For more information see IRS publication 550.

http://ftp.fedworld.gov/pub/irs-pdf/p550.pdf

Good Luck,
Z
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