I have looking to trade Sell calls with a few stocks I own. Now my question which is probably easy to answer for some is this: If I own XYZ at $30 and it's trading at $25, Im down $500 on the 100 shares i own at.$30 and I decide to do a May 20th $35 SELL CALL for for $75 and the stock doesn't touch $35 and I get to keep my collateral and the full $75 credit because the stock is trading at $28 at the time of the expiration, is that considered a wash sale since I made $75 while holding the stock at a loss?????????
Wash Sales are based on REALIZED losses. If you didn't sell stock for a loss, and you didn't buy back your options at a loss, then what losses did you realize here?
No, it's not. The_Krakenite's post was right. Whenever you sell a call or put and let it expire worthless, then you keep the premium as income and it's viewed by the IRS as an unrelated trade. Since there was no assignment, you never traded the underlying.
So I guess the answer to my question is yes I think you read that wrong. There are some nuances to be aware of, at least if you are in Canada: "- if you are holding a stock and the position is declining, you may want to protect your downside by adding a synthetic short to the position until conditions reverse. Notice that by adding a long put and short call to a long stock position, you establish a position known as a long collar. Just a word of caution: if you create a short position using options with the same strikes against a long stock position, the transaction may be refused because of a rule known as "shorting the box." Basically, the trade is interpreted as tax avoidance by Revenue Canada. To avoid this scenario, you can separate the strikes to create the collar."
Thank you for that information but I don't think I would put on a trade that confusing. What if I do a sell call and decide to sell the stock before the sell call expires??
Who cares if you sell the stock, unless it is selling at a loss. Or you have to buy back your call at a loss. But I have to ask, why are you risking yourself by going naked? This does not end well... I can tell you from personal experience.
The profit from the call premium is a short term capital gain. No taxable event occurred with the underlying in this scenario.
If people get into a real mess in their portfolio, they can try to go for the 'hail mary' re-set button. This would involve closing out ALL trades that have carried a wash-sale in some way for the year, and then waiting 30+1 days while remaining flat. I say 30+1 days because a lot of users don't realize the standard 30 days starts AFTER the day of your last trade. From what I understand, in the US the 30-day period involves all calendar days, and is not based on trading/business days. I'd still wait longer just in case you get hit by some wonkey settlement-day bullshit.