A capital gain in the wheel strategy occurs when your shares are called away at a covered call strike price that exceeds your Adjusted Cost Basis. This is in addition to all the option premiums you collected throughout the campaign.
Short-Term vs. Long-Term Capital Gains: The tax treatment of your capital gain depends on how long you held the shares. If held less than 12 months, the gain is taxed as ordinary income (short-term capital gain rate). If held more than 12 months, the favorable long-term capital gains rate applies. The clock starts when shares are assigned, not when the CSP was opened.
Wash Sale Rule: If you sell shares at a loss and buy the same stock within 30 days before or after (including by selling an ITM put), the loss may be disallowed for tax purposes under the wash sale rule.
Examples of Capital Gain (Wheel Strategy) in Action
- 1Shares assigned at $100, ACB reduced to $95 via premiums, called away at $105 CC strike — $10/share total profit ($1,000 per contract).
- 2Holding shares for 14 months before being called away qualifies the capital gain for long-term tax treatment.
- 3Being called away at $150 when stock is trading at $175 — $25 per share capital gain plus all premiums collected.