Investor A owns 1,000 shares of XYZ stock. Investor A buys 10 call options on XYZ stock.
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Question:
XYZ 75 July - The price quoted is $3.50.
A. – Explain the terms of the options.
B. - After A exercises his options how many shares of XYZ will he own?
Will A recognize any gain or loss on these transactions?
If so, how much? What will its character be?
C. - After B is assigned on her options how many shares of XYZ will she own? What will the basis in her shares be?
Will B recognize any gain or loss on these transactions? If so, how much?
What will its character be?
If XYZ was trading at $100 per share, the day before the options expired, could either of these investors have done something to enhance their tax position?
Related Book For
South-Western Federal Taxation 2019 Essentials of Taxation Individuals and Business Entities
ISBN: 9781337702966
22nd edition
Authors: William A. Raabe, James C. Young, Annette Nellen, David M. Maloney
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