Qualified covered call

Also called: QCC

A qualified covered call is a covered call written within specific limits on strike price and time to expiration set by IRC §1092. Meeting those limits qualifies the position for an exception to the straddle rules.

Why does the QCC exception matter?

Ordinarily, holding an option against a stock can create a "straddle," which suspends the holding period of the shares and can defer losses. A call that qualifies as a QCC is exempt: the underlying stock keeps accruing its long-term holding period, and the premium is taxed under normal rules. That is what lets a covered-call program run on appreciated stock without quietly resetting the path to long-term capital gains treatment.

What makes a covered call "qualified"?

The call must have more than 30 days to expiration when written and must not be too deep in the money — the qualifying strike depends on the stock price and time to expiration. The precise thresholds are technical and worth confirming with a tax professional before writing calls against a low-basis position.

This definition is for educational and informational purposes only and is not investment, tax, or legal advice. Option strategies involve risk and are not suitable for all investors. Tax treatment of options is complex and depends on individual circumstances, holding periods, and applicable law. Consult a qualified tax professional and investment advisor before acting. Yayati Asset Management is a Registered Investment Adviser.