924 Part VI: Measuring and Trading VolatHity 
again. The previous 11-month holding period is lost, as is the holding period during 
which the stock and put were held together. This tax consequence of a put purchase 
is derived from the general rules governing short sales, which state that the acquisi­
tion of an option to sell property at a fixed price (that is, a put) is treated as a short 
sale. This ruling has serious tax consequences for an investor who has bought a put 
to protect stock that is still in a short-term tax status. 
✓,,Married" Put and Stock. There are two cases in which the put purchase 
does not affect the holding period of the underlying stock. First, if the stock has 
already been held long enough to qualify for long-term capital treatment, the 
purchase of a put has no bearing on the holding period of the underlying stock. 
Second, if the put and the stock that it is intended to protect are bought at the 
same time, and the investor indicates that he intends to exercise that particular 
put to sell those particular shares of stock, the put and the stock are considered 
to be "married" and the normal tax rulings for a stock holding would apply. The 
investor must actually go through with the exercise of the put in order for the 
"married" status to remain valid. If he instead should allow the put to expire 
worthless, he could not take the tax loss on the put itself but would be forced to 
add the put' s cost to the net cost of the underlying stock. Finally, if the investor 
neither exercises the put nor allows it to expire worthless but sells both the put 
and the stock in their respective markets, it would appear that the short sale 
rules would come back into effect. 
This definition of "married" put and stock, with its resultant ramifications, is 
quite detailed. What exactly are the consequences? The "married" rule was original­
ly intended to allow an investor to buy stock, protect it, and still have a chance of real­
izing a long-term gain. This is possible with options with more than one year of life 
remaining. The reader must be aware of the fact that, if he initially "marries" stock 
and a listed 3-month put, for example, there is no way that he can replace that put at 
its expiration with another put and still retain the "married" status. Once the original 
"married" put is disposed of - through sale, exercise, or expiration - no other put may 
be considered to be "married" to the stock. 
Protecting a Long· Term Gain or Avoiding a Long-Term Loss. The 
investor may be able, at times, to use the short-sale aspect of put purchases to 
his advantage. The most obvious use is that he can protect a long-term gain with 
a put purchase. He might want to do this if he has decided to take the long-term 
gain, but would prefer to delay realizing it until the following tax year. A pur­
chase of a put with a maturity date in the following year would accomplish that 
purpose.