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No. of Recommendations: 6
foo1bar: Personally I'd avoid that type of scenario where it's at best an unknown. It sounds like you're looking to play cute with the IRS and IMO that'll probably come back to bite you.
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jrice: I appreciate the reference. As for your slur on my character, not so much.

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I wouldn't call that a slur upon your character; don't take it as such. To some in this corner, playing cute with the IRS is an art form. If you do it right, (meaning the law is on your side,) more power to you.

But to most sober-minded tax accountants, the suggested transaction is a little odd, to put it charitably.

You propose selling stock at a loss, and parking the cash over 30 days, while you sell a put on the same stock, creating a contingent liability to buy the stock back at the strike price,
while you hope the option expires, thereby keeping the option proceeds along with the stock proceeds. (I'll assume the option is sold for more or less about the price you sold for.)

So the question is, how likely is it that the option is "virtually certain to be exercised?" The longer you go over 30 days, the less certain it will or won't be exercised. But the more risk there is on options you write, also.

If the stock price goes back up, the put holder won't exercise at the strike price because he can sell stock at the higher market price. So his option will expire worthless, you get to keep the option premium, along with the stock proceeds, but you might not have enough to buy back the stock if you want it. And writing puts is supposed to be kind of an insurance strategy.

So the longer you hang out there, the more likely the loss will be legit. (Not a wash sale.) But it's a gray area, since "virtually certain" is not defined anywhere, really. So it strikes the thoughtful reader as a transaction done for tax purposes only. Which some might call "playing cute with the IRS."

Really, so is selling at a loss and buying back in 32 days, but that's a black-and-white kind of cute. Totally legit. The put option approach is more like 50 shades of gray. So if you like kinky type transactions you take your chances.

Bill
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