Long term LEAPs with calls written against them

Question

I bought 3 LEAPs on XYZ at various times in 2019 which all expired in 14-17 months. I intend to sell or donate them once they reach long term status. However, I also wrote 3 CALL options on XYZ that were out-of-money when written. Am I correct in assuming that writing these CALLs doesn't affect the LEAP holding period? Is it necessary for me to close the short positions before end of year to avoid having to report the call spread as an open hedging transaction?

xirt · Answer

A security is the specific option contract - i.e. the same call or put, underlying, strike price, and expiration date.   So a purchase and sale in one security should not effect another. i.e. assuming the Calls are different securities from the LEAPS one should not affect the other.

However the IRS does care about use of 'related' securities if you are using them avoid paying taxes to circumvent the holding periods. e.g. you bought a LEAP and then instead of selling the LEAP at the market short term, bought a call in a nearby strike or nearby expiration to "cancel-out" the remainder of the LEAP.

Long term LEAPs with calls written against them

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