I bought 900 shares of (XYZ stock) (a long time ago). I have been writing calls against the stock and they have always expired (worthless, i.e. I made the entire "written price" and for tax purposes I recognize this as a "Short Term Gain" with a trade date equal to the expiration date. My question arises this month because I sold 9 contracts of the DEC 45 Calls for $1 and I am assuming the calls will be valued around $5 at the time of expiration. Assuming this is the case, I am going to Buy-To-Close the position for a loss of $4 per contract or a total loss of (9 contracts x $4 = $3,600). For tax purposes this is a "Short Term" loss of $3,600 with trade dates equal to the sell-to-open date and the buy-to-close date. However, in actuality I am going to sell the JAN 50 Calls. I need to know if the "WASH RULE" applies to this trade (i.e. Am I allowed to recognize the "Short term Capital Loss for the DEC 45's" or do I have to carry this forward to the JAN50's)?
Your question is really whether the January calls are "substantially equal" to the December calls. If they aren't, and I believe that a December call is NOT the same as a January one, then you have sold different things and there is no wash sale. Best wishes, Chris
bigreturn99,Greetings and welcome to the Motley Fool message boards.I agree with the previous response. I would not consider the situation to mentioned a wash sale, but there is no firm guideline about how to determine when two options are "substantially identical."I also wanted to make sure you were aware there are other tax rules which may apply. If there were less than 30 days to expiration at the time you sold the calls you will have created a "straddle" by the IRS definition. This could prevent you from claiming the loss this year or it could require you to claim the loss as a long-term loss instead of a short-term loss.I wrote up an explanation of the tax implications of covered calls some time ago. It is athttp://boards.fool.com/Message.asp?mid=12322382Although I am not a tax professional I believe the information in that post is accurate and a little easier to read than the IRS equivalents.Good Luck,Z
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