Online investing: Exercising Calls and Puts

Online InvestingYou probably won’t actually exercise a call or put. You’ll probably sell it, as described above. If you do exercise a call or buy option, however, you need to record two transactions. To record the exercise of a call option, first record a transaction that sells the call option for zero.

Then record a transaction that purchases the optioned number of shares at the option price. To record the exercise of a put option, first record a transaction that sells the put option for zero. Then record a transaction that sells the optioned number of shares at the option price.

NOTE:

For income tax purposes, what you pay for a call needs to be counted as part of the purchase price if you exercise the call option and purchase shares. What you receive for a put needs to be counted as part of the sales price if you exercise the put and sell shares. This can get complicated, so you may want to consult your tax advisor.

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