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On May 9, 2019, Glenna purchases 500 shares of Ignaz Company stock for $7,500. On June 30, 2019, she writes a call option on the stock, giving the grantee the right to buy the stock for $9,000 during the following 12-month period. Glenna receives a call premium of $750 for writing the call. The call is exercised by the grantee on December 15, 2019.

a. What is the amount and character of Glenna's gain or loss?
Glenna has ________ (ordinary income/STCG/LTCG) of $____ from the sale of the stock.

b. Assume that the original option expired unexercised. What is the amount and character of Glenna's gain or loss?
Glenna has _________ (ordinary income/STCG/LTCG) of $____.

Respuesta :

Answer:

Explanation:

a.

$9000+$750-$7500 = $2250

The amount of Glenna's short term capital gain is $2250.

b.

Original option expired unexercised

So the call premium received by Glenna would be the short term capital gain. When the option is exercised Glenna have realized amount of $9750.[$9000+$750]

This means that the amount of Glenna's short term gain is equal to $2250{9750-7500; amount realised - amount adjucted]

The call premium of $750 is short term gain if the option expires unexercised

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