How Does Exercising a Call Option Affect the Tax Basis of the Acquired Underlying Asset?
When a call option is exercised, the premium paid for the option is added to the strike price paid for the underlying asset. This total amount becomes the cost basis of the newly acquired underlying asset for tax purposes.
The holding period of the option itself does not transfer; the holding period for the underlying asset begins on the day after the exercise date.
Glossar
Exercising a Put Option
Execution Trigger ⎊ Exercising a Put Option is the formal act by the holder to invoke their right to sell the underlying crypto asset to the option writer at the predetermined strike price.
Underlying Asset
Futures Pricing incorporates the cost of carry, which in crypto markets includes funding rates derived from perpetual swap markets and the time value associated with holding the spot asset.
Tax Basis Calculation
Calculation ⎊ The tax basis calculation, within the context of cryptocurrency, options, and derivatives, establishes the original cost of an asset for capital gains or losses determination.
Call Option
Entitlement ⎊ The core of a call option within cryptocurrency derivatives represents a contractual right, but not an obligation, to purchase a specified digital asset at a predetermined price, known as the strike price, on or before a specific expiration date.
Exercising a Call Option
Execution ⎊ The decision to exercise a call option represents the holder's formal declaration to utilize their right to purchase the underlying cryptocurrency at the predetermined strike price.
Acquired Underlying Asset
Valuation ⎊ An acquired underlying asset, within cryptocurrency derivatives, represents the pre-trade or post-trade assessed worth of the referenced instrument ⎊ typically a digital asset ⎊ upon which a derivative contract’s value is contingent.