Options - did not see forest for the trees. :(

[Nika]

I thought of a cute, safe little snowflake idea - sell covered weekly calls to something where it is unlikely to reach strike price. (Of course, I would get very little for it.) But, I thought "well, if it goes up to the strike price in 1 week, I have that profit, plus, I can re-buy the stock at the call price, and I should still be ahead few bucks.

I was sure I thought this through.

On my first try of doing this, I got exercised. Well, that sucks. But I re-bought the stock and even with commissions did not lose any money. Still ahead by $50.

The problem, something that I completely forgot about, in doing so I just realized 4K of profit on that stock!
Now I will have to pay ordinary income tax on it (massive) instead of capital gains.
And as a result we will probably not qualify for ROTH IRA this year.

The only "looser" I can harvest (that is outside my retirement account) is FWM. But the problem is I do want to keep that stock as long term investment. I definitely sucks that I bought it at 13, but if I had that money now, would I by it at the current price of 8? Yes. So I'm not what to do, other than the idea I asked about in another post, about buying option now, and exercising it after a "wash rule" period, as a way to lock in its current low price. But I'm not sure I'm allowed to do that -- I'm sure I'm not the only one who tried to get around a wash rule that way.

On the other hand, nothing stopping me from selling these micro-earning low risk calls now, that the clock for capital gains has re-set.

Looking back, I should have just closed my position when the price of the call dropped, but I got greedy because at that moment it did not look like it would possibly reach the strike price.

[KTP]

1) Do a backdoor Roth, it is easy. We have done it every year since 2010.

2) Do these micro transactions in a Roth so you don't have to worry about capital gains. I sell Apple weeklies in my Roth and have made a boatload because Apple options go for so much more than other stock options. I don't have enough in there yet to afford real Apple stock to cover my positions, so use deep in the money leaps.

3) Use something like optionshouse because the covered calls are only $5 commission.

[kv968]

2) Do these micro transactions in a Roth so you don't have to worry about capital gains. I sell Apple weeklies in my Roth and have made a boatload because Apple options go for so much more than other stock options. I don't have enough in there yet to afford real Apple stock to cover my positions, so use deep in the money leaps.

Since you can't write naked options in a Roth, I assume you're using the ITM leaps and just doing diagonal spreads?

[KTP]

Since you can't write naked options in a Roth, I assume you're using the ITM leaps and just doing diagonal spreads?

Yep, otherwise known as the poor man's covered call with no dividend.

[kv968]

Yep, otherwise known as the poor man's covered call with no dividend.

Ok, thought I was missing something on the margin in IRA's.

May be a "poor man's covered call" but that's about all you can do in an IRA with some of the high-priced stocks unless you've got a ton of money in there.