Tax Offset · Case Study

When covered call losses
offset taxable income.

A real account. 336 days. Every trade included. This case study shows how a covered call overlay on a single-name concentrated position generated net option losses that offset short-term equity income — reducing the effective tax rate on that income.

The Story in 3 Lines — Individual Taxable Account · Schwab 10991 · Options Overlay Only
The covered call overlay generated $32,646 in winning option premiums across 233 closed trades, and $40,421 in roll costs when underlying stocks appreciated.
Those net losses offset $7,775 of short-term equity income that would otherwise have been taxed at ordinary rates.
Scaled: approximately $1,730 per $100K of similar portfolio shifted from ordinary-rate taxation. At 24%, that's $415 in bracket math.
Tax Outcome — Options Overlay · Individual Taxable Account
Schwab 10991
ST taxable income without overlay
$14,894
→
With overlay
$7,119
$7,775 shifted from ordinary-rate income
The 1099 shows −$7,775 in net options P/L. That amount directly offsets short-term equity gains that would otherwise be taxed at ordinary rates.
Tax Saved on the $7,775 Shifted · 24% Bracket
$1,866
On the shifted amount only · actual savings depend on client's full tax picture
Not tax advice
AVGO — The Mechanism in Practice
Schwab 1099 · Apr 14, 2026
Equity Stream — Deferred
+$210,370
Unrealized · +46.8% of account NLV · not yet taxed
Cost basis unchanged at $82.01
≠
Options Stream — Realized on 1099
−$12,298
Net options P/L · Schwab 1099
105 trades: 73 wins (+$19,730) · 32 roll losses (−$32,028)
5 Representative Transactions · Schwab 1099¹
DateContractAmount
09/08/25
$330 call · AVGO ~$335
Early roll as stock approached strike
−$2,067
09/11/25
$350 call · AVGO ~$348
Largest single roll loss
−$3,378
12/19/25
$420 call · AVGO ~$340
Profitable close below strike
+$2,937
04/01/26
$450 call · AVGO ~$381
Largest single win
+$4,426
04/13/26
$370 call · AVGO ~$376
Latest confirmed roll loss
−$2,927
Current Open Options P/L — Unrealized
~$2,389
Two open calls at a mark-to-market loss. If rolled at current prices, would generate ~$2,389 in additional realized short-term capital losses.
Open P/L as of Apr 14, 2026 · not yet realized · changes as market moves
ⓘ
No wash sale triggered on AVGO
Option contracts and shares are different instruments under IRC §1091. Rolling never affects AVGO's cost basis.
How It Works — The Two-Stream Mechanism
01
A concentrated position appreciates
Unrealized gain intact. Cost basis unchanged. No tax event yet.
02
The covered call gets repositioned
As the stock approaches the call strike, the software closes the existing contract and opens a new one further out. That closing transaction is a separate taxable event on the option contract only.
03
Two outcomes · two separate instruments
Equity stream
Unrealized gain stays intact. No taxable event. Equity compounds untaxed.
Options stream
Buy-to-close = realized short-term capital loss. Appears on 1099. Offsets ordinary-rate income.
This applies to any concentrated position in a rising market, not just AVGO.
Which Positions Generated the Tax Offset
SymbolRoll losses relative to premium collected$ lost per $1 collected
IAU
$6.48
AVGO
$1.62
SPY
$1.28
QCOM
$0.75
PLTR
$0.42
MSFT
$0.07
TSLA, AMD — no roll losses. Both declined during this period. Calls expired below the strike with no rolling required and no tax losses generated. The ratio is driven entirely by underlying appreciation, not the strategy itself.
IAU + AVGO: $35,241 in option losses on the 10991.
This Account · Complete 1099 Activity
Schwab 10991 · May 15, 2025 – Apr 14, 2026 · Individual taxable account · Not tax advice
Covered Call Activity233 trades · 8 symbols
Symbol
Trades
Premiums Collected
Roll Losses
Net P&L
AVGOBroadcom Inc.
105
$19,730
−$32,028
−$12,298
← primary tax driver
IAUiShares Gold ETF
19
$496
−$3,213
−$2,718
← secondary driver
SPYSPDR S&P 500 ETF
13
$897
−$1,152
−$254
PLTRPalantir Technologies
63
$6,507
−$2,717
+$3,791
MSFTMicrosoft Corp.
25
$2,513
−$180
+$2,333
QCOMQualcomm Inc.
3
$1,512
−$1,131
+$381
TSLATesla Inc.
4
$550
—
+$550
AMDAdv. Micro Devices
1
$440
—
+$440
Options Total
233
$32,646
−$40,421
−$7,775
net tax shift
How the tax shift was generated — The Two-Stream Mechanism
When AVGO (704 shares, +47%) approached a covered call strike, AcuBooth bought back the call and opened a new one higher. That buy-to-close is a realized short-term capital loss on the options contract, while the underlying AVGO shares keep appreciating, unrealized and untaxed. Two separate instruments, two separate outcomes. Rolling generated −$32,028 in buy-to-close losses, partially offset by +$19,730 in premiums collected, for a net of −$12,298 on AVGO options alone. IAU (gold ETF) contributed an additional −$2,718 via the same mechanism. Together, AVGO and IAU account for the full −$7,775 options net that offset short-term equity income. Sep–Nov 2025 was the heaviest period: 13 AVGO rolls, −$18,682 in roll costs as AVGO ran sharply.
1 Schwab 1099 · May 2025–Apr 2026 · Not tax advice · Consult a qualified tax professional