My understanding of the tax laws is that the proceeds are not taxable until the transaction is closed or the position expires (I could be wrong and I will check).
I am planning to purchase what will be or "tax" home in a more tax friendly state than we are currently residing in. I want this to happen in 2012 and I expect to need some capital for this in very early '12. I don't want the capital gains in '11 as our current state of residence is not so friendly. I don't want to wait to sell since every time I attempt that strategy it seems to go against me.
So, by selling the 7.50 calls for $3.50 each, I have locked in an $11.00 sale price and delayed the taxes unless the shares decline below $7.50.
Another reason for selling such deep in the money calls (not my reason) is to effectively trade shares I own without recognizing the taxes on the whole trade. The deep in the money calls should almost fluctuate directly with the price of the underlying shares, whereas calls that are closer to the share price would have a premium, but wouldn't track the underlying price as closely. If the shares decline, one could purchase the calls back and only recognize the income on the difference.
BTW, my cost on these shares is about $2.75. Also, these shares are not a significant portion of my overall position. I'm still a big believer in Ariad.
Those are my thoughts.
rum
