Option wash sales; by contract or by underlying?

Discussion in 'Options' started by HustleThePlanet, Nov 18, 2011.

  1. Question for the options traders out there; if I trade in two different option contracts on the same underlying security within the wash sale time limit, but the options themselves have different strikes and/or expirations; can a wash sale come of this, or is each contract treated like a unique security?
  2. I would say that they are not unique but you never know because tax law is often confusing and contradictory. See WASH SALES as well as OPTIONS in IRS publication 550 and draw your own conclusions.
  3. Thank for for the reply, but I assure you that I am not that lazy. I have already searched this site, google, and irs.gov for the solution. Publication 550 is unclear, as is every other source on the matter that I've managed to come accross.

    I did find one interesting article that states:

    Perhaps I should restate my question: Has anyone reported options with the same underlying but different strike/exp as NOT being "substantially identical" without receiving a follow up hassle from the IRS?

    I mean, come on, this entire forum can't just consist of demo-traders and tax evaders.
  4. Discussing taxes in a public forum is like discussing politics in east Germany. No one wants to do it.
  5. My guess is that it depends on how you are trading and what the interpretation of your trading style is. I know that there are issues when something is considered hedging or constructive sale, etc. Best to speak to an accountant.
  6. Per Pub 550, acquiring an options to buy substantially identical stock is a wash sale and wash sale rules apply to losses on options so the inference is that different options of the same class would also be violations.

    AFAIK, Fairmark.com is a reputable tax info site. Their opinion is that the IRS rules are ambiguous and whether one option is substantially identical to another option isn't clear and there's no way to know how the IRS would rule the trades if noted.

    There are 3 ways get around this.

    1) Avoid trading substantially similar vehicles in the 61 day wrap period or ignore violations all year and close last position by 12/31

    2) Apply for MTM status

    3) Only pick winners :)
  7. bc1


    No one, including any tax professional or the IRS, can answer a hypothetical question that is devoid of any specific facts. H & R Block won't even understand the question.

    You can list out the entire transaction fact by fact with all dates, dollar amounts, trade types, profits/losses, and then request a letter ruling from the IRS. Or you can file your taxes based upon your particular legal analysis and then write the IRS and ask them to audit your return so you can get a specific ruling. The IRS doesn't like to get hustled as they would rather hustle the planet.
  8. I guess as the end of this year approaches, I am faced with the lingering memory of filling out my schedule d at the last minute by hand last year. I really don't care so much about writing off my few minimal individual losing positions on a line by line basis. It is really just the HASSLE I am concerned with, doing all of that sounds like an even bigger hassle than the one I am trying to avoid in the first place.

    So perhaps I should rephrase the question once again; is there anyone who has personally used, and can recommend, a good automatic tax software program? Hopefully one which was written specifically with traders in mind.
  9. This will be the 4th year that I have used TRADELOG to prepare my Schedule D. I do a ton of small trades. Because I scale in and out of positions as well as up and down, I have a lot of wash sales which are almost impossible to manually reconcile.

    It downloads a 1,000 trades in minutes and pairs them in about the same time. The only hands on involvement is providing add'l info if you have delistings, splits, stock dividends, takeovers, symbol changes, etc.

    Given the weeks of time I wasted in '08 trying to reconcile my trades, it's worth every penny of its cost in time saved. They have various subscription rates based on your volume of trading.

    Search on TRADELOG here as well as GOOGLE for their web site.
  10. My experience exactly, just change the year. I will definitely look into tradelog.
    #10     Nov 27, 2011