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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: rolatzi who wrote (18379)	4/22/2002 10:47:42 PM
From: Don Lloyd	Read Replies (2) \| Respond to of 74559

rolatzi - If I have a covered call and the stock continues to rise then the call increases in value, which gives me a loss since I am short the option. If I decide that I want to hold the stock and the call has increased in value, I need to cover the call which generates a loss. If I buy back the call option within 31 days then I can't take this tax loss on the option until I sell the stock at which time I can fold the loss into the basis of the shares. ... This doesn't sound right to me. You seem to be saying that a single transaction cycle can create its own wash sale. See if we reword your example whether the same situation exists. If I have a naked short call and the underlying unowned stock continues to rise then the call increases in value, which gives me a loss since I am short the option. The call has increased in value and I need to cover the call which generates a loss. If I buy back the call option within 31 days then I can't take this tax loss on the option. It should be clear that this isn't true. So either you are claiming that no transaction loss can be taken for a holding period of less than 31 days, or that the fact of holding the underlying stock affects the tax treatment of the option by itself even if the stock is not delivered against option assignment. What would be true is that a new sale of the option within 31 days after the covering purchase would invoke the wash sale rule, but the length of the initial short holding period would be irrelevant. Subject to alternative interpretations. Regards, Don