Hi Minh,
I don't believe it is that simple. Below is what I found out from my research.
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Special Considerations: Qualified vs. Unqualified Treatment
When writing ITM covered calls, the investor must first determine if the call is qualified or unqualified, as the latter of the two can have negative tax consequences. If a call is deemed to be unqualified, it will be taxed at the short-term rate, even if the underlying shares have been held for over a year. The guidelines regarding qualifications can be intricate, but the key is to ensure that the call is not lower by more than one strike price below the prior day's closing price, and the call has a time period of longer than 30 days until expiry.4
For example, Taylor has held shares of MSFT since January of last year at $36 per share and decides to write the June 5 $45 call receiving a premium of $2.65. Because the closing price of the last trading day (May 22) was $46.90, one strike below would be $46.50, and since the expiry is less than 30 days away, their covered call is unqualified and the holding period of their shares will be suspended. If on June 5, the call is exercised and Taylor's shares are called away, Taylor will realize short-term capital gains, even though the holding period of their shares was over a year.
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So in my little example, since I sold ITM call and held less than 30 days, should my capital gain from the stock sales be treated as short term gain?
Any other experts, please chime in....Thanks!!!
