I'm shorting TMV, and I'm also writing naked calls on it. With how badly bonds have been doing lately, it looks like I'll probably get assigned on two sets of options: one with an expiration on February 20 and another on March 20. I have a few questions that I was hoping someone might be able to answer. 1) Am I correct in my understanding that my TMV shorts won't contribute to any wash sales as long as I didn't add to my short position within 30 days of the option expiring and being assigned? 2) Am I correct in understanding that the February 20 contract can expire in the money and be assigned, and this wouldn't be a wash sale, but it WOULD be a wash sale if the set on March 20 also expires in the money? 3) If #2 is true, can I prevent this by buying to cover the March 20 options before the expire? My understanding is that taxes are based on the purchase and sale of the underlying security if the option expires in the money, and the premium is added to the sale price. If this is true, I would imagine that a wash sale would only be triggered if the difference between the market price and the strike price of the security is greater than the premium of the option, but I'm not 100% sure about this. Anyway, my plan is just to write naked call options and let them expire rather than covering them, and I'm wondering what the wash sale implications of this strategy might be. Is it as simple as just not letting two sets of call options for the same underlying security not expire within 30 days of each other? (If so, it was pretty dumb for me to write two sets 28 days apart...) Also, I'm assuming that letting naked call options expire ITM would mean that I simultaneously purchase and sell the underlying security rather than entering a short position, especially since these funds aren't always available to short in the first place. Any information that anyone could provide would be greatly appreciated!
[This is my opinion, not professional tax advice] You can "wash sale" to your heart's content throughout the year and not give it a 2nd thought so long as you don't carry any of those wash sales into the following year. Now, for the purposes of your quarterly tax estimates, you should take them into account because you don't want to underestimate the est. tax owed at that time. For example, if you close out a wash sale trade at the end of December, it won't count as a wash sale for tax purposes in that year IF you don't trade it again within the waiting period in January. You have to have a vehicle in which to carry the wash sale trade candidates forward. No vehicle, no wash sale. If you don't want to raise any red flags to you-know-who, then treat December as the no-no month to trade any instrument currently qualifying as a wash sale candidate. Fairmark dot com is the best place for trading tax help.
Sometimes options on ETFs are taxed as Section 1256 contracts. Section 1256 contracts are marked-to-market daily, and have no wash sale implications. Information is available on the Internet with a little digging (such as http://www.twenty-first.com/articles/how_are_your_etf_options_taxed.htm), but it's always best to get it from an accountant who know his/her stuff.