During year 1, Jane purchases 100 shares of the stock of XYZ Corp.

QUESTION

Need help with homework question.During year 1, Jane purchases 100 shares of the stock of XYZ Corp. for $10 each, and John, her husband, purchases a put option on 100 shares of XYZ stock, with a strike price of $9.50, for a premium of $50. The value of the stock goes down, and Jane sells her XYZ stock for $9 a share late in year 1. Johns option is worth $90 at the end of year 1, and the option cash-settles during year 2 with a payment of $125 to John. What are the tax consequences of these transactions? 

 

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