OK.. doe sit apply to people who are not US tax residents but do trade US futures products through non US brokers ( but eventually on the US exchange)
qqq and xlk are not similar. In fact if you had the spy and an index with 499 of the same names (weighted the same) they would not be considered similar. don’t be so sure on the options being treated differently. I used to think the same thing and my broker E*TRADE was actually treating the options as similar to the underlying. It is hard to see it (at least at E*TRADE).
I actually know almost nothing about the withholding rules for non-US citizens on U.S. security trades, so I'll let someone with more experience answer that, maybe @luisHK?
If that's true, then the "substantially similar" rule is meaningless. It is intentionally poorly defined so that the IRS has the ability to apply it arbitrarily and inconsistently whenever they feel like it. That explains why no one can give me a definition of "substantially similar". Still, I think if you sell 100 shares of XOP at a loss and then immediately short a $2 ITM put expiring in 2 months, I don't think that will qualify as a wash sale as the exposure and returns are not the same. Agree with Sig though, avoid doing wash sales if you can. Changing underlings is probably better (sell XOP, buy COP for example).
Your example would qualify as a wash sale. in the money options typically count as substantially similar. Though I think E*TRADE is treating all options are substantially similar if they are in the same direction. It’s really hard to figure out. I have spent a lot of time trying to understand wash sales. I have spoken to two accountants: my business accountants spent a substantial amount of time and I talked to a trading specific accountant. I’ve also spent time with E*TRADE’s tax department. It’s still not a black and white issue for me. Best is to close everything in a name for 30 days if you are sitting on a significant loss that you need to offset gains. One year I had 7 figures of dissallowed wash sales because I got cute. That’s when I embarked on this study.
Hard to see how selling 100 shares of XOP and selling a $2 ITM put 2 months out is a wash sale, but your example of selling one ETF and buying another that has 99.8% similar underlyings is not. If that's true, then the wash sale rule is horribly inconsistent, illogical, and arbitrary. Agree that it's best to avoid it.
It is what it is. Substantially similar is explained in the IRS documentation. But I think it’s more vetted by court cases. Same with trader status.
I also think that wash sale is the right option for you. Sell it at a loss and repurchase it. As far as I know, such losses are often not deductible.
You can try to shift to a different underlying for your own convenience. There surely is a wash sale rule so be careful with whatever you do.