Buying back a covered call...30/31 day wash rule

[Cabin111]

I am now trying to glean as many short term capital losses as I can. I want to put them against my short term capital gains. I need to do this next week. I will do "buy to close" to grab some of these loses from my covered calls "sell to open" on different stocks. I get it, my accountant OKed it.

My accountant then told me I had to wait 30/31 days, before I can do another covered call on those stocks. Is that correct?? I thought it only applied to stocks (wash rule). Does the wash rule apply to options too??

Thanks for any input...Thanks VERY much for any GOOD/REAL input!!

 

[Overnight]

I am now trying to glean as many short term capital losses as I can. I want to put them against my short term capital gains. I need to do this next week. I will do "buy to close" to grab some of these loses from my covered calls "sell to open" on different stocks. I get it, my accountant OKed it.

My accountant then told me I had to wait 30/31 days, before I can do another covered call on those stocks. Is that correct?? I thought it only applied to stocks (wash rule). Does the wash rule apply to options too??

Thanks for any input...Thanks VERY much for any GOOD/REAL input!!

Don't you have to Mark-to-Market at EOY on those open positions anyway? So you'd take the open position losses and gains for EOY, and apply the losses and gains when you close them next year, after the 31 days?

 

[BKR88]

I am now trying to glean as many short term capital losses as I can. I want to put them against my short term capital gains. I need to do this next week. I will do "buy to close" to grab some of these loses from my covered calls "sell to open" on different stocks. I get it, my accountant OKed it.

My accountant then told me I had to wait 30/31 days, before I can do another covered call on those stocks. Is that correct?? I thought it only applied to stocks (wash rule). Does the wash rule apply to options too??

Thanks for any input...Thanks VERY much for any GOOD/REAL input!!

Wash rule was changed in 1988 to include options. Must wait 30 days.

 

[Cabin111]

Don't you have to Mark-to-Market at EOY on those open positions anyway? So you'd take the open position losses and gains for EOY, and apply the losses and gains when you close them next year, after the 31 days?

I've been chewing on what you have said for a couple of days now. I've been reading on the internet about Mark-to-Market and end of year stuff. Doesn't Mark-to-Market apply more to business than to this stock situation?? My accountant never asks for end of year positions on stocks that have not been sold. Even with a put buyback (buy to close), it seems like he did not need the cost basis or end of year value of the stock that was not sold. Maybe I'm wrong.

Also you got me even more confused with applying loses and gains for next year. How would that apply by buying back covered calls this year (Monday) and have them clear 2 days later in 2020. So if I have closed a position this year, and reopen a position in February 2021 (covered call...And the call did not get called away [expired worthless or got called away in 2022]), why would my accountant need my cost basis or even the end of year value of this stock?

Not saying you're wrong, I just don't understand...

 

[Overnight]

...So if I have closed a position this year, and reopen a position in February 2021 (covered call...And the call did not get called away [expired worthless or got called away in 2022]), why would my accountant need my cost basis or even the end of year value of this stock?

Not saying you're wrong, I just don't understand...

It's more likely on my end, because I do not trade securities. Under section 1256 rules, you would MTM any open positions, and they would be taxable at that year's tax rate. If you close them in the next tax year, the losses/gains would be applied for the next tax year.

So for example, if you had an open CL future position in the green for $10K on Dec 31st, you'd be expected to pay the tax on that 10K profit through the MTM function.

If on Jan 14th, say, you closed the position at only $8K profit, you'd report a loss of $2K on that position for that tax year, because you paid tax on 10K profit while the position was open, but only gained 8K profit when the position was closed.

I have only run into this situation once a few years ago, and do not remember the exact details, and do not know how it works under SEC options rules as I don't trade those.

It is certainly a complicated question, and IRS form 6781 is about as ambiguous a form you can find on the futures side. What forms you have to use for that scenario for securities I can only imagine.

 

[Cabin111]

It's more likely on my end, because I do not trade securities. Under section 1256 rules, you would MTM any open positions, and they would be taxable at that year's tax rate. If you close them in the next tax year, the losses/gains would be applied for the next tax year.

So for example, if you had an open CL future position in the green for $10K on Dec 31st, you'd be expected to pay the tax on that 10K profit through the MTM function.

If on Jan 14th, say, you closed the position at only $8K profit, you'd report a loss of $2K on that position for that tax year, because you paid tax on 10K profit while the position was open, but only gained 8K profit when the position was closed.

I have only run into this situation once a few years ago, and do not remember the exact details, and do not know how it works under SEC options rules as I don't trade those.

It is certainly a complicated question, and IRS form 6781 is about as ambiguous a form you can find on the futures side. What forms you have to use for that scenario for securities I can only imagine.

I'll buy these back and let the chips fall where they may. Think I'm OK and making the right move. I'll talk to my son in law (family are wheat farmers)...Can ask him how they handle options to protect their crops and MTM.

Just curious how USO is treated...It's an LLP and not futures per say, even though they invest in futures. I use to own it years ago...In my ROTH IRA. My accountant told me to get out of it and never to return to that "LLP" again. I've written before that with USO and other LLPs, you can lose more than your regular investment. If it files bankruptcy, you could be on the hook for write downs in debt!! Even in a ROTH IRA...

Two other EFTs...SLV and JO. Silver futures and coffee futures...I believe these EFTs are set up where you would not have to deal with MTM.