Open Exam Prep

Series 7 Exam Prep 51, Options Taxation and Exercise

July 28, 2026·3 min
Episode Description from the Publisher

This podcast is made by Ran Chen, who holds an EA license, Insurance and Securities licenses (Series 6, 63, 65), and the CFP® designation. He is passionate about opening access to high-quality exam preparation resources and helping learners prepare more effectively for professional certification exams. In this episode you will learn: - That exercising an option is not an immediate taxable event; it adjusts the cost basis or sales proceeds of the stock. - The mnemonic "Call Up, Put Down" to remember that for calls you add the premium to the strike price, and for puts you subtract it. - How buying a protective put can reset the holding period of a stock held for one year or less. - The unique tax treatment of covered calls, where the stock's original cost basis is maintained upon assignment. - The special 60/40 tax rule for broad-based index options under Section 1256, where gains are 60% long-term and 40% short-term. For more free exam prep tools, practice questions, and AI-powered explanations, visit https://open-exam-prep.com/ or YouTube Channel: https://www.youtube.com/@Open-exam-prep

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