What Are the Tax Implications of an Option Expiring Worthless?

When a purchased option expires worthless, the entire premium paid for the option is treated as a capital loss. The character of this loss (short-term or long-term) is determined by the option's holding period.

The loss is recognized on the date the option expires. For a written option that expires, the premium received is treated as a short-term capital gain, regardless of the holding period.