Final answer:
The holding period of a stock can be affected by certain options transactions. In this case, buying an in-the-money put and writing an in-the-money call are the transactions that affect the holding period of XYZ stock, making the correct answer C) I and II.
Step-by-step explanation:
When considering the holding period of a stock for tax purposes, certain options transactions can affect the count. For example, buying a protective put option (in-the-money or out-of-the-money) could be seen as a hedge, and by IRS regulations, it may effectively suspend the holding period of the underlying stock if it is deemed to have substantially reduced the risk of loss.
On the other hand, writing (selling) a call option can also have implications. Writing an in-the-money call could be considered a sale by the IRS under the 'constructive sale' rules, and this could effectively close the holding period of the stock. However, writing an out-of-the-money call, especially if part of a covered call strategy, may not affect the holding period of the underlying stock as it may not substantially diminish the risk of holding the stock. Given these concepts, the correct answer that identifies the options which affect the holding period of XYZ stock held for 6 months would be: C) I and II. Both buying an in-the-money put and writing an in-the-money call can influence the holding period according to IRS regulations concerning hedge positions and constructive sales.