This Tax Season, Know Your Options

Trading in options can be tricky, but the tax consequences of those trades can be even trickier.

Options are contracts that give the holder the right to buy or sell a specified number of shares of the underlying stock at a specified price per share (the strike price) by a specified date (the option expiration or exercise date). Call options grant the holder the right to buy shares; put options guarantee you the right to sell shares.

In short, if you buy a call option you're betting the underlying shares will increase in price by the exercise date. If they do, you exercise your options and buy the shares at the specified (lower) price. If they don't, you let the options expire and all you've lost is the premium, or what you paid for the options contract. ...