What Did You Buy Today?

[fenders53]

(05-04-2021, 02:48 PM)fenders53 Wrote:

(05-04-2021, 02:39 PM)vbin Wrote: Does wash sale rule applies while rolling options?

If you are moving the date or strike  I can't imagine that works.  It's not the same security/investment.  Chad would know.

I may have misunderstood you.  I don't know if Chad ever plays options but he is surely going to need details.  If I sell an option then buy it back for whatever price, win or lose, that's a roundtrip closed trade.  The next one at a new expiration date is a new trade.  If you are repeatedly buying and selling the exact same ticker and strike like you might trade a JAN22 LEAP, that would clearly fall under wash sale rules if I was the IRS. You could do that once a week and in my mind it's the same security.. It's a great question.

[Otter]

Found this article:

https://fairmark.com/investment-taxation...d-options/

Technically the law applies to options, but how the IRS would actually apply the law in the absence of published rules/regs is a mystery.

[ChadR]

(05-04-2021, 03:04 PM)vbin Wrote:

(05-04-2021, 02:48 PM)fenders53 Wrote:

(05-04-2021, 02:39 PM)vbin Wrote: Does wash sale rule applies while rolling options?

If you are moving the date or strike  I can't imagine that works.  It's not the same security/investment.  Chad would know.

I find differing opinions online. It's not clear. Some say it doesn't, some say it does. @ChadR any idea?

The reason you find differing opinions is because the Treasury Department hasn't issued any regulations on this.  The conservative route is yes they do apply since you are going in the same direction with the old option as the new option.  The aggressive route is no they don't apply since it is a different option with different dates and or prices.

Now it's getting taken out of your hands in some cases.  If the brokerage company you uses says it's a wash sale and reports it to the IRS as one, you're pretty much stuck reporting it that way.  Now you can not report the wash sale, but you might get audited over it.  You would have to fight it all the way to the Supreme Court.  This might get the Treasury Department to finally issue some regulations on this.  But how much are you going to be out in attorney and CPA fees to get them to issue regulations on this?

Now wash sales don't apply to gains at least.

[fenders53]

(05-04-2021, 03:39 PM)ChadR Wrote:

(05-04-2021, 03:04 PM)vbin Wrote:

(05-04-2021, 02:48 PM)fenders53 Wrote:

(05-04-2021, 02:39 PM)vbin Wrote: Does wash sale rule applies while rolling options?

If you are moving the date or strike  I can't imagine that works.  It's not the same security/investment.  Chad would know.

I find differing opinions online. It's not clear. Some say it doesn't, some say it does. @ChadR any idea?

The reason you find differing opinions is because the Treasury Department hasn't issued any regulations on this.  The conservative route is yes they do apply since you are going in the same direction with the old option as the new option.  The aggressive route is no they don't apply since it is a different option with different dates and or prices.

Now it's getting taken out of your hands in some cases.  If the brokerage company you uses says it's a wash sale and reports it to the IRS as one, you're pretty much stuck reporting it that way.  Now you can not report the wash sale, but you might get audited over it.  You would have to fight it all the way to the Supreme Court.  This might get the Treasury Department to finally issue some regulations on this.  But how much are you going to be out in attorney and CPA fees to get them to issue regulations on this?

Now wash sales don't apply to gains at least.

Thanks Chad.  Not exactly what I thought you would say, but it makes sense.  We are clearly selling derivatives of the exact same security, so it's not so hard to make the case we are subject to the wash rule. I guess I will keep my option trades in my tax advantaged accounts forever.

Not exactly sure what you mean by directional though.  In an upside down trade I can, and have, rolled my future strike up or down after considering time value when the trade occurred.  In the end buying or selling a put or call is clearly a bullish or bearish trade by definition.

[fenders53]

Busy day, a lot of mostly small trades. The port is a little too conservative.

Finally started on my green "ETF". I have lots of green UTEs but here is a start on the risky stuff. About $500 each. ARRY-RUN-NOVA-SPWR. And anothe CSLR put. I will add a few more or add or not if they hit my price.

Sold a put in NEE-VSTO-TSM

Added shares to VSTO and just a couple GNRC shares

Sold a covered call in HRL. This is just an income play. Its going nowhere soon IMO and works for selling puts and calls.

[Otter]

(05-04-2021, 04:01 PM)fenders53 Wrote:

(05-04-2021, 03:39 PM)ChadR Wrote:

(05-04-2021, 03:04 PM)vbin Wrote:

(05-04-2021, 02:48 PM)fenders53 Wrote:

(05-04-2021, 02:39 PM)vbin Wrote: Does wash sale rule applies while rolling options?

If you are moving the date or strike  I can't imagine that works.  It's not the same security/investment.  Chad would know.

I find differing opinions online. It's not clear. Some say it doesn't, some say it does. @ChadR any idea?

The reason you find differing opinions is because the Treasury Department hasn't issued any regulations on this.  The conservative route is yes they do apply since you are going in the same direction with the old option as the new option.  The aggressive route is no they don't apply since it is a different option with different dates and or prices.

Now it's getting taken out of your hands in some cases.  If the brokerage company you uses says it's a wash sale and reports it to the IRS as one, you're pretty much stuck reporting it that way.  Now you can not report the wash sale, but you might get audited over it.  You would have to fight it all the way to the Supreme Court.  This might get the Treasury Department to finally issue some regulations on this.  But how much are you going to be out in attorney and CPA fees to get them to issue regulations on this?

Now wash sales don't apply to gains at least.

Thanks Chad.  Not exactly what I thought you would say, but it makes sense.  We are clearly selling derivatives of the exact same security, so it's not so hard to make the case we are subject to the wash rule. I guess I will keep my option trades in my tax advantaged accounts forever.

Not exactly sure what you mean by directional though.  In an upside down trade I can, and have, rolled my future strike up or down after considering time value when the trade occurred.  In the end buying or selling a put or call is clearly a bullish or bearish trade by definition.

I would feel very comfortable arguing in tax court that call options for the same ticker with different strikes/expiries are not "substantially identical" for purposes of the Wash Sale Rule. I would also feel very comfortable arguing the same where only the strike price or expiry differs from one option to the other. 

In the absence of regulatory guidance, the court should apply the ordinary and plain meaning of "substantially identical" for purposes of applying the Wash Sale rule to options.

I have felt very comfortable arguing things to courts before. Sometimes I am successful, and sometimes I am not. Chad is correct that being the test case on this issue would be a lengthy and expensive process for most people. The way tax disputes work, you pay the IRS the disputed amount up front, then spend years arguing before tax and appellate courts that you don't owe what has already been paid for whatever reason. The system does not encourage creative advocacy, except for the wealthiest of taxpayers and corporations where huge sums of money turn on the ultimate decision.

[fenders53]

(05-04-2021, 04:19 PM)Otter Wrote:

(05-04-2021, 04:01 PM)fenders53 Wrote:

(05-04-2021, 03:39 PM)ChadR Wrote:

(05-04-2021, 03:04 PM)vbin Wrote:

(05-04-2021, 02:48 PM)fenders53 Wrote: If you are moving the date or strike  I can't imagine that works.  It's not the same security/investment.  Chad would know.

I find differing opinions online. It's not clear. Some say it doesn't, some say it does. @ChadR any idea?

The reason you find differing opinions is because the Treasury Department hasn't issued any regulations on this.  The conservative route is yes they do apply since you are going in the same direction with the old option as the new option.  The aggressive route is no they don't apply since it is a different option with different dates and or prices.

Now it's getting taken out of your hands in some cases.  If the brokerage company you uses says it's a wash sale and reports it to the IRS as one, you're pretty much stuck reporting it that way.  Now you can not report the wash sale, but you might get audited over it.  You would have to fight it all the way to the Supreme Court.  This might get the Treasury Department to finally issue some regulations on this.  But how much are you going to be out in attorney and CPA fees to get them to issue regulations on this?

Now wash sales don't apply to gains at least.

Thanks Chad.  Not exactly what I thought you would say, but it makes sense.  We are clearly selling derivatives of the exact same security, so it's not so hard to make the case we are subject to the wash rule. I guess I will keep my option trades in my tax advantaged accounts forever.

Not exactly sure what you mean by directional though.  In an upside down trade I can, and have, rolled my future strike up or down after considering time value when the trade occurred.  In the end buying or selling a put or call is clearly a bullish or bearish trade by definition.

I would feel very comfortable arguing in tax court that call options for the same ticker with different strikes/expiries are not "substantially identical" for purposes of the Wash Sale Rule. I would also feel very comfortable arguing the same where only the strike price or expiry differs from one option to the other. 

In the absence of regulatory guidance, the court should apply the ordinary and plain meaning of "substantially identical" for purposes of applying the Wash Sale rule to options.

I have felt very comfortable arguing things to courts before. Sometimes I am successful, and sometimes I am not. Chad is correct that being the test case on this issue would be a lengthy and expensive process for most people. The way tax disputes work, you pay the IRS the disputed amount up front, then spend years arguing before tax and appellate courts that you don't owe what has already been paid for whatever reason. The system does not encourage creative advocacy, except for the wealthiest of taxpayers and corporations where huge sums of money turn on the ultimate decision.

If we retained you, we would expect you to comfortably argue TSLA LEAP calls are the same as an F put.  They sell cars right?  

[Otter]

I would take it one step further, too, and say there is a valid argument to be made that options with identical strikes/expiries, but purchased at different times, are not "substantially identical." Unlike stocks, options are time-limited, and value decay due to the running of time (Theta) is a very real driver of option value.

The risk profile of an option with two months on the clock is very different from an option with 30 days left. It is quite possible, in the context of options, to purchase an option within the wash sale period that is materially different from the "same" option when it was sold. Stocks don't really have that theta time decay component.

I suspect these complexities are one of the reasons the IRS hasn't published any rules.

[Otter]

(05-04-2021, 04:30 PM)fenders53 Wrote:

(05-04-2021, 04:19 PM)Otter Wrote:

(05-04-2021, 04:01 PM)fenders53 Wrote:

(05-04-2021, 03:39 PM)ChadR Wrote:

(05-04-2021, 03:04 PM)vbin Wrote: I find differing opinions online. It's not clear. Some say it doesn't, some say it does. @ChadR any idea?

The reason you find differing opinions is because the Treasury Department hasn't issued any regulations on this.  The conservative route is yes they do apply since you are going in the same direction with the old option as the new option.  The aggressive route is no they don't apply since it is a different option with different dates and or prices.

Now it's getting taken out of your hands in some cases.  If the brokerage company you uses says it's a wash sale and reports it to the IRS as one, you're pretty much stuck reporting it that way.  Now you can not report the wash sale, but you might get audited over it.  You would have to fight it all the way to the Supreme Court.  This might get the Treasury Department to finally issue some regulations on this.  But how much are you going to be out in attorney and CPA fees to get them to issue regulations on this?

Now wash sales don't apply to gains at least.

Thanks Chad.  Not exactly what I thought you would say, but it makes sense.  We are clearly selling derivatives of the exact same security, so it's not so hard to make the case we are subject to the wash rule. I guess I will keep my option trades in my tax advantaged accounts forever.

Not exactly sure what you mean by directional though.  In an upside down trade I can, and have, rolled my future strike up or down after considering time value when the trade occurred.  In the end buying or selling a put or call is clearly a bullish or bearish trade by definition.

I would feel very comfortable arguing in tax court that call options for the same ticker with different strikes/expiries are not "substantially identical" for purposes of the Wash Sale Rule. I would also feel very comfortable arguing the same where only the strike price or expiry differs from one option to the other. 

In the absence of regulatory guidance, the court should apply the ordinary and plain meaning of "substantially identical" for purposes of applying the Wash Sale rule to options.

I have felt very comfortable arguing things to courts before. Sometimes I am successful, and sometimes I am not. Chad is correct that being the test case on this issue would be a lengthy and expensive process for most people. The way tax disputes work, you pay the IRS the disputed amount up front, then spend years arguing before tax and appellate courts that you don't owe what has already been paid for whatever reason. The system does not encourage creative advocacy, except for the wealthiest of taxpayers and corporations where huge sums of money turn on the ultimate decision.

If we retained you, we would expect you to comfortably argue TSLA LEAP calls are the same as an F put.  They sell cars right?  

I wasn't aware TSLA sold cars. I thought they just sold regulatory credits. 

[fenders53]

(05-04-2021, 04:30 PM)Otter Wrote: I would take it one step further, too, and say there is a valid argument to be made that options with identical strikes/expiries, but purchased at different times, are not "substantially identical." Unlike stocks, options are time-limited, and value decay due to the running of time (Theta) is a very real driver of option value.

The risk profile of an option with two months on the clock is very different from an option with 30 days left. It is quite possible, in the context of options, to purchase an option within the wash sale period that is materially different from the "same" option when it was sold. Stocks don't really have that theta time decay component.

I suspect these complexities are one of the reasons the IRS hasn't published any rules.

Oh you are really reaching now. Judge doesn't want to hear about no theta nonsense lol.  An AUG strike 50 is an AUG strike 50.  I'd pay to watch you argue that though. 

[Otter]

(05-04-2021, 04:34 PM)fenders53 Wrote:

(05-04-2021, 04:30 PM)Otter Wrote: I would take it one step further, too, and say there is a valid argument to be made that options with identical strikes/expiries, but purchased at different times, are not "substantially identical." Unlike stocks, options are time-limited, and value decay due to the running of time (Theta) is a very real driver of option value.

The risk profile of an option with two months on the clock is very different from an option with 30 days left. It is quite possible, in the context of options, to purchase an option within the wash sale period that is materially different from the "same" option when it was sold. Stocks don't really have that theta time decay component.

I suspect these complexities are one of the reasons the IRS hasn't published any rules.

Oh you are really reaching now. Judge doesn't want to hear about no theta nonsense lol.  An AUG strike 50 is an AUG strike 50.  I'd pay to watch you argue that though. 

That would be the last argument in the brief. Give the judge something to deny and uphold the other two arguments, while emphasizing the unique nature of options vs. stocks. Unless, of course, your client bought AUG strike 50s on different dates and that's the only argument you can run with. 

You can really start arguing how many angels can dance on the head of a pin once you start nit-picking the differences between stocks and options. If I have a wash-sale of 100 T shares, it means that within the wash-sale period, I obtained 100 other T shares. I still own 100 shares of T at the end of the day. Everything is substantially identical. 100 T is 100 T. 

If I sell a call option that gave me the right to buy 100 shares of T in 60 days for $35/share if T closes over $35 on that day, I have not sold any interest in T. I have sold a unique contract that provided me the right to purchase T 60 days in the future if the contract conditions were met. If, 30 days later, I buy a call option giving me the right to buy 100 shares of T in 30 days for $35/share if T closes over $35 on that day, I have purchased a very different contract due to the remaining expiry period at the time of purchase.

[NilesMike]

[If I sell a call option that gave me the right to buy 100 shares of T in 60 days for $35/share if T closes over $35 on that day, I have not sold any interest in T. I have sold a unique contract that provided me the right to purchase T 60 days in the future if the contract conditions were met. If, 30 days later, I buy a call option giving me the right to buy 100 shares of T in 30 days for $35/share if T closes over $35 on that day, I have purchased a very different contract due to the remaining expiry period at the time of purchase]

Lots of confusion of terms in that paragraph.