Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
I posted the below in the SA Board for IDCC but was referred to this board for better chances of a detailed response. Will appreciate any guidance.

--------------------------
All - Need a bit of help -

Background: A little over a month ago, I sold IDCC Sept 2011 $40 calls (when the stock was at $35-37 range) to protect against an unfavorable ruling against NOK. I have the same number of shares at a cost basis @ $25 or so. So in effect, the call is a covered call. Needless to say, today, my stocks have more than tripled in value, but my options are keeping up pace and negated all that nice jump. Overall, have a 60% gain (over many years - held IDCC since '05 I think, which translates to 7-9% annual return), so am not losing money BUT extremely sad to have missed out on this. Another red-flag on my investing style - first NFLX, now this. Haven't mastered the art of selling as much as buying in.

Desired Goal: Anyway, I want to close my option position and sell my shares on the same day as two separate transactions because my stock gains are long-term, and my option losses are short-term.

Question: Wwould wash-sale apply here because the transactions are done on the same day (hence within the 30/60 day window) on the same security? (OR) Can I actually list the option loss as a short-term loss and list stock gains as a long-term gain in Schedule D and do calculate them individually?

I have AAPL option gains enough to offset IDCC option losses - so from a short-term gain/loss perspective, I can have the +ve and -ve number offset each other - close to zero. And I have the IDCC stock gains to get me long-term gains rates that & hopefully get long-term TAX rates.

Any perspective (or) prior experience would be appreciated...

Thanks!

PS: Understand the "please check with your tax advisor" type disclaimers, but am interested in the community perspective on the above situation.
Print the post Back To Top
No. of Recommendations: 0
Background: A little over a month ago, I sold IDCC Sept 2011 $40 calls (when the stock was at $35-37 range) to protect against an unfavorable ruling against NOK. I have the same number of shares at a cost basis @ $25 or so. So in effect, the call is a covered call. Needless to say, today, my stocks have more than tripled in value, but my options are keeping up pace and negated all that nice jump. Overall, have a 60% gain (over many years - held IDCC since '05 I think, which translates to 7-9% annual return), so am not losing money BUT extremely sad to have missed out on this. Another red-flag on my investing style - first NFLX, now this. Haven't mastered the art of selling as much as buying in.

Desired Goal: Anyway, I want to close my option position and sell my shares on the same day as two separate transactions because my stock gains are long-term, and my option losses are short-term.



you want to do this NOW?

i'm fairly sure that the 'things' are different enough that Wash sale.

but you might consider holding till Sept and letting the options be exercised.

the price you got for the options will decrease the basis, and you'll have one long term gain and one commission (vs long-term gain, short term loss and two commissions)

[ i sell covered calls, but generally either buy back and keep the stock or let them expire worthless. ]
Print the post Back To Top
No. of Recommendations: 0
You don't have any wash sale issues. A call option on a stock is not substantially identical to the stock itself.

Since the option was not exercised, you would report the two positions - the stock and the option - separately. Report the gain/loss on the option position and separately report the gain/loss on the stock position.

And that's pretty much it.

Things might be different if you had used some more complex structures - like straddles and such.

--Peter
Print the post Back To Top
No. of Recommendations: 0
Per IRS Publication 550,

You cannot deduct losses from sales or trades of stock or securities in a wash sale.

A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:

Buy substantially identical stock or securities,

Acquire substantially identical stock or securities in a fully taxable trade,

Acquire a contract or option to buy substantially identical stock or securities, or

Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA.

This means that the wash sale rules are activated when you buy, AND THEN BUY within the time window.

If I understand your fact situation correctly, you already own both the short and long positions of this company's stock. If so, you are simply selling during the time window, there are no purchases.

If so, the wash sale rules do not apply.

Note that stocks and options can be considered substantially identical.

Hope I got the fact situation correct.

Bob

www.taxpreparerlearningsystems.com
Print the post Back To Top
No. of Recommendations: 0
Thanks all for your responses !

Hi Bob - I own the stock (so long position) and had sold (so short) the call options. So to close positions individually, I will need to sell the stocks and buy the call options. Wash-sale came up from that standpoint (since I have to buy - acquire - the call options to close out my position)

Option 1:
I will sell the stock at profit & buy the call option at loss to close out positions individually.

Option 2:
I let the call expire (and it will get exercised), which will effectively transfer (sell) my shares out.

Question is whether I will hit wash-sale in either of the above two options... I am inclined towards Option 2 per one of the earlier responses in the thread.


Thanks,
StockGame101
Print the post Back To Top
No. of Recommendations: 1
"This means that the wash sale rules are activated when you buy, AND THEN BUY within the time window."

huh?

You don't have a wash sale without a sale. You don't have a wash sale when you enter into a short option position when you have a long stock position. These are not substantially identical --- they basically move inversely --- and there's no sale. You don't have a wash sale when you close out a covered call by delivering the appreciated stock, and you don't have a wash sale when you sell your hedged position and your hedge together. You're closing out your gain position. And you're closing out all your positions, at a net gain.

The reference in Pub 550 is to selling a stock at a loss and buying a call as a stock replacement trade. Basically, they don't want you claiming the tax loss on a loss position when you haven't fully exited your long exposure. In this situation the only long exposure is a gain position. No wash sale problem.
Print the post Back To Top