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+918 Part VI: Measuring and Trading Volatility 
+There is one further rule in connection with qualified calls. Recall that we stat­
+ed that the above rules apply only if the stock is not yet held long-term when the call 
+is written. If the stock is already long-term when the call is written, then it is consid­
+ered long-term when called away, regardless of the position of the striking price when 
+the call was written. However, if one sells an in-the-money call on stock already held 
+long-term, and then subsequently buys that call back at a loss, the loss on the call 
+must be taken as a long-term loss because the stock was long-term. 
+Overall, a rising market is the best, taxwise, for the covered call writer. If he 
+writes out-of-the-money calls and the stock rises, he could have a short-term loss on 
+the calls plus a long-term gain on the stock. 
+Example: On January 2nd of a particular year, an investor bought 100 shares of XYZ 
+at 32, paying $75 in commissions, and simultaneously wrote a July 35 call for 2 points. 
+The July 35 expired worthless, and the investor then wrote an October 35 call for 3 
+points. In October, with XYZ at 39, the investor bought back the October 35 call for 
+6 points (it was in-the-money) and sold a January 40 call for 4 points. In January, on 
+the expiration day, the stock was called away at 40. The investor would have a long­
+term capital gain on his stock, because he had held it for more than one year. He 
+would also have two short-term capital transactions from the July 35 and October 35 
+calls. Tables 41-2 and 41-3 show his net tax treatment from operating this covered 
+writing strategy. The option commission on each trade was $25. 
+Things have indeed worked out quite well, both profit-wise and tax-wise, for this 
+covered call writer. Not only has he made a net profit of $850 from his transactions on 
+the stock and options over the period of one year, but he has received very favorable 
+tax treatment. He can take a short-term loss of $175 from the combined July and 
+October option transactions, and is able to take the $1,025 gain as a long-term gain. 
+TABLE 41-2. 
+Summary of trades. 
+January 2 
+July 
+October 
+January 
+Bought 100 XYZ at 32 
+Sold 1 July 35 call at 2 
+July call expired worthless (XYZ at 32) 
+Sold 1 October 35 call at 3 
+Bought back October 35 call for 6 points (XYZ at 39) 
+Sold 1 January 40 call for 4 points 
+(of the following year) 
+1 00 XYZ called away at 40