<<Following is an example of a real trade:7/20/97---Sell 20 calls to open:CEPH, Nov 12 1/2's at 211/15/97--Roll out calls by executing spread order:Buy 20 calls to close:CEPH, Nov 12 1/2's at 3Sell 20 calls to open:CEPH, Feb 12 1/2's at 42/20/98---Options expire as stock price has dropped below strike price There were no other purchases or sales of CEPH stock oroptions during the period covered or within 30 days prior to origial purchase or after option expiration.Do the above transactions constitute a wash sale? ORCan I report the Sell at 2 and Buy at 3 as a $2000 short term loss for 1997 and then a $8000 short term gain for 1998 based on the Feb 12 1/2 calls expiring?>>If I understand your situation correctly, your question falls into an area where the law is not absolutely clear -- but where we're *pretty sure* what the answer is. And the pretty sure answer is that you have a wash sale.It's been clear since 1988 that the wash sale rule applies to equity options. And it's also clear that you can have a wash sale in connection with the closing of a short position at a loss. Somewhat less clear is the question when options are considered "substantially identical" for purposes of this rule. We don't have guidance from the IRS on this issue but I expect most experts in this area would say you have a wash sale when you close a November position and open an otherwise identical February position on the same day. Although there is some uncertainty, I believe the most likely correct approach is to report this as a wash sale.KAT in Chicagolandwww.fairmark.comTax Guide for Investors
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