Wash Sales & Put Writing...
Duplicate post from elsewhere.
Please consult your tax advisors for details.
Good luck ;-).
di
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www4.law.cornell.edu
>>> Sec. 1091. Loss from wash sales of stock or securities
(a) Disallowance of loss deduction
In the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date, the taxpayer has acquired (by purchase or by an exchange on which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities, then no deduction shall be allowed under section 165 unless the taxpayer is a dealer in stock or securities and the loss is sustained in a transaction made in the ordinary course of such business. For purposes of this section, the term ''stock or securities'' shall, except as provided in regulations, include contracts or options to acquire or sell stock or securities .<<<
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taxlinks.com
>>> Rev. Rul. 85-87
1985-1 C.B. 268, 1985-25 I.R.B. 6.
Internal Revenue Service
Revenue Ruling
SALE OF STOCK AND 'PUT' OPTIONS; LOSSES ON STOCK; DISALLOWANCE
Published: June 24, 1985
Section 1091.-Loss From Wash Sales of Stock or Securities, 26 CFR 1.1091-1: Losses from wash sales of stock or securities.
Sale of stock and 'put' options; losses on stock; disallowance. A loss on the sale of corporate stock, otherwise allowable under section 165, is disallowed under section 1091, if within 30 days of the sale of stock, the taxpayer sold an 'in-the-money' put option with respect to the stock and, based on the objective factors at the time the put was sold, there was no substantial likelihood that the put would not be exercised.
ISSUE
Is a loss on the sale of corporate stock, otherwise allowable as a deduction under section 165 of the Internal Revenue Code, nondeductible under section 1091 of the code if, under the facts described below, a taxpayer sells an 'in- the-money' put option with respect to the stock within 30 days of the date of the sale.
FACTS
On December 3, 1984, A, an individual, sold 100 shares of X corporation stock and realized a loss with respect to the shares. On December 4, 1984, A sold a put option obligating A to buy 100 shares of X corporation stock prior to February 1, 1985, at a particular price (the 'exercise price') if the holder of the put option exercised the option. When the put was sold by A, the market price of the stock was substantially less than the exercise price of the put. In light of the spread at the time the put was sold between the value of the underlying stock and the exercise price of the put, the term of the put, the premium paid, the historic volatility in the value of the stock, and other objective factors, there was, at that time, no substantial likelihood that the put would not be exercised. Because the fair market value of the stock at the time the put was sold was less than the exercise price of the put, the put option sold by A is referred to as an 'in-the-money' put.
LAW AND ANALYSIS
Section 165(a) of the Code generally provides that a deduction is allowed for any loss sustained during the taxable year that is not compensated for by insurance or otherwise.
Section 165(c) of the Code provides that in the case of an individual the deduction under section 165(a) is limited to losses incurred in a trade or business; losses incurred in any transaction entered into for profit, though not connected with a trade or business; and certain casualty losses.
Section 1091(a) of the Code provides, in part, that in the case of any loss claimed to have been sustained from any sale of shares of stock where it appears that, within a period beginning 30 days before the date of such sale and ending 30 days after such date, the taxpayer has acquired, or has entered into a contract or option so to acquire, substantially identical stock, then generally no deduction for the loss is allowed under section 165.
The substance, rather than the form, of a transaction in which a taxpayer is involved governs the tax consequences of the transaction. In the instant case, at the time the put was sold there was no substantial likelihood that the put would not be exercised. Thus, for purposes of section 1091(a), the put sold by A is in substance a contract to acquire stock.
HOLDING
Any loss resulting from the sale of X corporation stock by A, otherwise allowable as a deduction under section 165 of the Code, is nondeductible under the provisions of section 1091.
Rev. Rul. 85-87, 1985-1 C.B. 268, 1985-25 I.R.B. 6.<<<
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nysscpa.org
>>>A covered call is qualified if it is not deep in the money, is listed on national securities exchange, and has a term of at least 31 days at the time it is sold. For this purpose, a call with a strike price not below the "benchmark" passes muster. The benchmark is generally the highest available strike price below the applicable stock price Sec. 1092 (e)(4)(c)). Thus, in the case of writing puts, an investor has a basis for comfort if the put is struck at the next highest available exercise price above the price of the stock .<<< |
