Practice Quiz

FINRA Series 7

Category - Series 7

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In mid-September, Bubba sells one XYZ February 50 call at $6. It subsequently expires without being exercised. How is the premium taxed?
  1. Bubba’s cost of the underlying stock is reduced
  2. the $600 premium is a capital gain
  3. the $600 premium constitutes ordinary income
  4. the $600 premium is rolled over into another XYZ call with the next longest expiration date.
Explanation
Answer: B - the $600 premium is capital gain. That’s simply how the tax law works.
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