Replies to post #13397 on Ariad Pharmaceuticals Inc fka ARIA

[JJM760]

I guess I see your reasoning. Only problem I see (if you call it that) is that you could potentially leave some money on the table if Ariad is trading much higher than $11 by then.

GL with the house (and Ariad)

[biomaven0]

My understanding of the tax laws is that the proceeds are not taxable until the transaction is closed or the position expires

Unfortunately you may have just stepped into a complex and messy area of the tax code. The issue is that you might have a constructive sale because you sold a deep-in-the-money covered call. It's been a long while since I looked at the Regs though, and it's possible that a $7 strike is what is termed a "qualified call" and you are OK - I forget what the exact definition of deep-in-the-money is.

This is actually a good discussion that comports with the tax law as I understand it - just not sure if it is up to date or not:

http://boards.fool.com/covered-calls-and-taxes-12322382.aspx

Peter

[lax20m]

I would check with an accountant on the tax implications of your trade. I did a little research on this very subject a year ago because I too wanted to generate some cash and defer the taxable gain until the following year. I ultimately opted not to deploy the strategy for "other reasons" and didn't get a final answer on the tax implications but my understanding is that selling a deep in the money call which you expect to be exercised in a subsequent period for the purpose of gettting cash now and being taxed later can lead to immediate tax implications. If memory serves there is no bright line and the key is "what is deep in the money." Certainly dont' take my word for it as I never went to an accountant on it but I would definately check it out if you plan to continue the strategy because inuitively it makes sense that it result in taxable income.