Wash Sales and Call Buying...
A good friend of ours PMed me:
Edited:
I heard from a source that purchase of o-t-m call options, at a strike date beyond the 31 days following sale of a security (Q) at a loss, will nonetheless vitiate (wash) the loss in the current year if the call was purchased w/i 31 days of the sale. I thought the law was that purchase of a security (call option, o-t-m by some specified %) w/i 31 days that was not "substantially the same" as that sold at a loss (the common) could avoid washing the sale. Thus, a call o-t-m call, let's say 15% or more above market price at time of purchase of the call, might qualify as a different security, thereby preserving the loss on the sale of the common for tax purposes.
IMHO, not so per Sec. 1091 www4.law.cornell.edu
But, can one sell put (not "DIM" or deep in-the-money) during this period? Once 30 days have passed, one might cover the put and repurchase the underlying stock.
.0000000009 cent worth ;-).
di
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Good information below:
1. wsaccess.com
>>> You CAN'T go from the stock to the option BUT you can go from the option to the stock.
If you sell the stock, you can't buy the option even if the option is out of the money. The statute says that the wash sale will kick in if you "either buy a substantially identical security or enter into an option to buy a substantially identical security."
But let's say you're long an option, and you're losing your shirt on it. You can sell the option, buy back the underlying stock and, Voila!, no wash sale. Why? The option and the stock are not substantially identical, according to a 1958 IRS ruling.
Here's another tip. If you sell the stock at loss, you can't buy a call option within the 61-day period (30 days before the day of the sale and 30 days after), right? But you can sell a put option, as long as the put option is not deep in the money. So a put option with a strike price that's no more than one strike below will probably suffice, though that's not actually written in the statutes, says Willens. But this is a great trade because in either case you walk away still owning the stock.
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2. fairmark.com
>>> If you sell stock at a loss, you'll have a wash sale (and won't be able to deduct the loss) if you buy substantially identical stock within the 61-day wash sale period consisting of the day of the sale, the 30 days before the sale and the 30 days after the sale. You'll also have a wash sale if, within the wash sale period, you enter into a contract or option to buy substantially identical stock.
Example: On March 31 you sell 100 shares of XYZ at a loss. On April 10 you buy a call option on XYZ stock. (A call option gives you the right to buy 100 shares.) The sale on March 31 is a wash sale.
It doesn't matter whether the call option is in the money. This is an automatic rule. If you buy a call option in this period, you'll have a wash sale. And that's true even if you never exercise the option and acquire the stock.<<<
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3. nysscpa.org
>>>...the ruling (Rev. Rul. 85-87) espousing this position is uncomfortably vague as to when a put is sufficiently deep in the money to warrant application of the wash sale rule. it seems likely, however, that an investor can look to the concept of a qualified covered call option for guidance.
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. <<<
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Glossary:
thectr.com
Good private info:
tradersaccounting.com |
