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Disposition and Taxes- Introduction

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Disposition and Taxes Introduction The tax consequences arising out of option transactions are extremely complex. Options,  like stocks, are classified as capital assets, and the disposition of such assets is a taxable  event. As with stocks, how long the position has been held determines whether the gain  or loss is classified as short- or long-term. Furthermore, how the gain or loss is treated  also depends on whether the option contract has been terminated through trade,  expiration, or exercise and assignment. Because of this sensitivity to how an option  contract is terminated, the first part of this chapter describes all three terminating actions  and the corresponding times by which they must be initiated and accomplished. These  are especially important in nip-and-tuck situations where the exercise price of an option  is very close to the market price as the expiration day approaches. Trading Until June 23, 1997, trading in all equity options, including