This article was originally published in The Option Strategist Newsletter Volume 10, No. 22 on November 21, 2001.
This is not really a year-end tax strategy, but it is something that covered writers who are writing calls against low-cost-basis stock should consider.
We usually try to run an article on this subject at least once during tax season. I realize that not everyone is aware of the rules governing Section 1256 contracts. Hence, since tax season is upon us, I thought this review might be of benefit to some of our subscribers – and to options and futures traders, in general. Section 1256 trades include all futures trades, as well as futures options. They also include option trades on cash-based indices ($OEX and $SPX, and especially $VIX), but not SPY or QQQ, for example, for the underlying in those cases is an ETF, not cash.
