A random tax question for you:
I bought an option on a stock. This is an exchange-traded option not connected in any way with employee compensation. I am considering exercising this option and holding the underlying stock for an indefinate amount of time. For the purposes of my question, I paid $.80 a share for the option and the strike price is $10. Questions:
- If I exercise the option, do I owe cap gains on the difference between what I paid for the option and what it was worth when I exercised? I think the answer is no.
- I believe that I pay no cap gains taxes until I sell the underlying stock, at which point my basis will be $10 plus $.80, or $10.80. Is this correct?
- To get LTCG treatment on the underlying stock, I have to hold it for a year and a day. Does the clock start ticking from the day I bought the option otr the day I exercised and bought the underlying stock?