In-kind Distribution of a call option
If one takes an in-kind distribution of a stock in which they’ve written a covered call, can they take the distribution of both the stock and the option? If so, how is the option valued for the distribution?
If one takes an in-kind distribution of a stock in which they’ve written a covered call, can they take the distribution of both the stock and the option? If so, how is the option valued for the distribution?
Permalink Submitted by Alan Spross on Mon, 2011-03-28 22:38
I assume you are referring to an IRA in kind distribution.
With my limited options knowledge, I don’t think the option has a value to the writer as he keeps the premium whether the stock is called or not. The option only has present value to the buyer.
It also seems that it may not be wise to distribute the stock before the option expires because the stock has limited upside until the option expires. Because of that you are paying tax on a distribution whose upside is capped vrs taking a distribution of another stock of the same value that is not capped. I also think that the IRA custodian will show the same taxable amount on the 1099R based on the FMV at distribution whether their is an unexpired option written on it or not.
Others may have actually done this and it would be interesting to see how the IRA custodian handled it.