Stock Option Trading System

I have started to trade option spreads, credit spreads to be exact. Since most of the positions are short term, do you know how they are taxed?

The IRS uses the term "straddle" to describe an option spread.

The taxation is covered in IRS Publication 550. See the following sections:

Short Sales . . . . . . . . . . . . . . . . . 54
Wash Sales . . . . . . . . . . . . . . . . . 55
options . . . . . . . . . . . . . . . . . . . . 56
Straddles . . . . . . . . . . . . . . . . . . . 57

The primary objective of the straddle rules is to prevent you from claiming a realized loss on one leg of a spread while you still have an unrealized gain on another leg of the spread. A secondary objective is to prevent the holding period of a security from including time that a position is hedged.

Taxes on spreads are usually short-term capital gains or losses, assuming you are not a professional trader. If you are a professional trader, and you make the mark-to-market election, none of the above applies.

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