Herm,
I've got a question of my own, and this question has been posted on the tax thread too, without receiving an answer.
Correct me if I am wrong. Warnings: I am not a CPA.
Q1) Wash Sale rule.
Say, I own 100 XYZ stock, and sold the Apr98 25 call when the stock was at $23 in Jan 98, for $3. Near expiration day (Apr98) the stock jumps to $31. I then roll the call up, buying the call back at $6, for a loss of $3, then immediately sell the Jul30 call for $3.
Assuming that the Jul30 call expire worthless, and that I continue to hold the stock pass Dec31 1998, does the wash sale rule applies for the $3 roll-up loss?
McMillan said in the tax chapter, and you seemed to concur, that the 2 calls (apr25 and jul30) while each individually is "substantially identical" to the underlying securities, are nevertheless not "substantially identical" with each other. Therefore the wash sale rule does not apply.
Q2-5) Selling ITM calls v.s. constructive sale rule and holding period rule.
Q2) If I in Apr 98, sell the Jan00 $25 for $10, then since the call strike is 2 strike below the stock price at $31, the $10 is subject to constructive sale rule.
Q3) If I in Apr 98, sell the Jan00 $30 for $5, then since the call strike is 1 strike below, I am not subject to the constructive sale rule, but my holding time on the stock is suspended until the call is bought back or expired.
Q4) If I in Apr 98, sell the Jan99 $25 for $8, then I am not subjected to the constructive sale rule, since the option expire within 12 months of the short sale.
Q5) If I in Apr 98, sell the Jan99 $35 for $4, then I am not subjected to the constructive sale rule, nor the holding time suspension rule, since the call is OTM.
Any tax savvy investor wants to correct or add anything?
I know that we must all consult a tax knowlegeable person for our return, but knowing these rule helps in making the correct investment decision with respect to tax gain. (Even some tax preparers are not aware of these rules, sigh!!) |
