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Online investing: Writing Calls and Puts

A call is an option to buy a share of stock. A put is an option to sell a share of stock. You may write, buy, or exercise calls and puts. When you write a call or put, what you really do is collect money from someone in return for promising the person the option, or chance, to buy or sell a share of stock at a specified, or strike, price by some future date.

When a call or put expires without being exercised—and this is the usual case—recording the transaction is simple. If you’re the one writing the call or put, just record the transaction as miscellaneous income. If you’re the one buying the call or put, you just record the option purchase the way you do any other stock purchase.

If the call or put expires and becomes worthless, just record the sale as a stock purchase with the amount set to zero. (This is the most common case.) If, on the other hand, you sell the call or put before the expiration date because the call or put can be profitably exercised, you record the sale as a stock sale with the amount set to whatever you sell the option for.

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