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Financial Planning / Tax Strategies


Subject:  Re: Tax Treatment of Option Roll Date:  12/20/2013  4:57 PM
Author:  ptheland Number:  119744 of 127753

The problem you're up against is one with no black and white answer. As you are probably aware, wash sale rules apply when you sell a security at a loss and replace it with a substantially identical security.

Generally, options with one expiration date are typically NOT substantially identical with options having a different expiration. However, because options that are deep in the money behave much more like their underlying stock than options roughly at the money or out of the money, there is some question about these in the money options becoming substantially identical to other options despite differing strike prices or expiration dates.

I don't know of any definitive authority which is on this point.

If you are concerned about wash sale issues, your best bet is to avoid the wash sale in some other way. You could sell the losing option and wait 31 days before buying the replacement. You could buy the replacement and then wait 31 days before selling the losing position. You could use a different (but somewhat similar) underlying stock. (For example, selling your option on Exxon-Mobil and buying an option on BP.)

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