Skip to main content
Message Font: Serif | Sans-Serif
No. of Recommendations: 0
Hi jpfooligan --


Let's say I bought a January 2021 call for $12 ($1,200 invested) for a stock with a strike price of $115. And let's say that stock is now trading north of $450. The capital required to exercise the option and buy 100 shares is $11,500, but the call is currently trading over $350, so the value of the option is over $35,000. If I exercise the option, what happens to the $32,000+ gain? What happens to the initial $1,200? Do I only need $10,300? Trying to mitigate (or defer) the LT Cap Gains...

If you exercise the option and buy the shares, you will pay another $11,500 on top of the $1,200 you've already paid, for a total investment of $12,700. That $12,700 becomes your basis in the stock. Your holding period as a shareholder for those shares is treated as if you bought on the day you exercised the options to buy the shares, so you'd have to hold for over a year from that point for any gains to be considered long term.

Discovery/HR Home Fool
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.