Back in mid-2022, I purchased some shares of AAPL in the mid-$140s when it dipped (I'm a sucker for AAPL), with a plan to hold it for at least a year and then sell when a good opportunity presented itself (and reinvest in a broad market index at that time). In order to help enforce a sell at a good price, I sold some covered calls expiring March 2024, $180 strike price for $12 or so per share ($1,200 or so per contract, which is done in increments of 100 shares), and another set more recently expiring January 2024, $190 strike price for $9.50 per share. AAPL shares have been absolutely streaking upwards and are now nearing $179, essentially at all-time highs for the stock. Assuming my covered calls don't get called early, and AAPL is above the strike price as either of those two expiration dates approaches, I was wondering if there would be tax benefit in closing those positions and then either selling the AAPL shares or letting it ride* and selling new covered calls?
Here's a hypothetical scenario - it's March 2024, AAPL is $190 a share. My options would be:
(1) let the option period expire. My AAPL shares are called at $180. I generate long term capital gains of $180 - $145 = $35/share plus $12 for the covered call premium, which is a short term gain and tax at the marginal rate for income
(2) close the option position by purchasing the same $180 March 24 calls for, let's say $12 a share. I now have closed out the option with a $0 gain and am sitting on AAPL shares worth $190. I could sell them and generate $45/share in long term gain, or sell another set of covered calls and have no realized gain (until the new covered calls reach their expiration date).
Is that an accurate statement - essentially, you can convert a short term gain from the option premium into an unrealized long term gain on the underlying stock by closing the option position? In my case my long term cap gain tax rate on that income would be 15%, and short term gain tax rate would be 24%, so definitely worth understanding the implications of various choices here.
* Side note: I think AAPL at $190/share would be a nosebleed valuation and the smart move would almost surely be to take profits at that price. It remains to be seen what '2024 Me' will do, of course.
