Holders of common stock of major companies can sell (write)

"qualified covered calls" and receive a substantial tax

advantage. First the proceeds are received without any tax.

If the stock goes up and the writer buys back the written

calls, the loss on the "written" calls can be currently

deducted from other capital gains, if any, or against ordinary

income at a rate of $3000.00 per year if there are no capital gains.

But, what is a "qualified covered call"? All you have to know

is that a sale of at-the-money or slightly out-of-the-money call

with more than 30 days and less than 12 months is a sale

of a "qualified covered call". Sales of calls between 12 and 33

months to expiration will require an upward adjustment of the

minimum exercise price. 

Of course the stock must be owned in a

quantity equal to or more than the amount of stock

underlying the calls that you sell (write).

For example if you own 3000 shares of Yahoo! and sold 25 

January 2009 calls with an exercise price of 35 when the stock

was 32, the 25 January 2009 (35's) would be "qualified covered

calls".

What's so special about slightly out of the money covered calls?

Well, "qualified covered calls" are exempt from the Straddle

Rule 1092 and do not change the tax status on dividends

received from the underlying stock. Effectively, in many

cases you can hold on to the stock and never pay a tax.

In fact, if you accumulate loss carry forwards, those loses

can be used when and if you sell some of your profitable 

stock holdings or make a profit on calls sold in hedging

your employee stock options.

Email John Olagues at olagues@hotmail.com for exactly

how to do it.

The author, JOHN OLAGUES, is a former member of the Chicago Board Options Exchange and the Pacific Stock Exchange for over ten years. He offers a unique view of employee stock options from a trader’s standpoint rather than from the standpoint of an accountant, compensation planner or academic. To contact JOHN OLAGUES email olagues@hotmail.com and  see www.optionsforemployees.com.