Is this a wash sale: Options with different strike price

I

isaac000

If you buy xyz stock's Jan07 $30 call option and sell it at a loss, and then buy same stock's Jan07 $25 call option less than 30 days after, does that count as a wash sale? Their underlying securities are the same.
 
I am not sure if it applies here. Option day traders are not subject to wash sale rule that I have heard of.

options in general are part of wash sale rule (i.e., cannot sell XYZ stock in december at a loss and then replace it with long call just to bank the loss and still have a long position). However taking a loss on a $30 strike call and then buying a $25 strike call, not as clear.

My reaction is that this is not a wash sale situation.

Quote from isaac000:

If you buy xyz stock's Jan07 $30 call option and sell it at a loss, and then buy same stock's Jan07 $25 call option less than 30 days after, does that count as a wash sale? Their underlying securities are the same.
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Don, thanks for the link. According to this guide, non-equity options and Index options are marked to market. Equity options are not.

Let's consider this scenario: an investor bought GM call contracts and Ford put contracts. Since these two stocks are correlated well, at the year end, GM call option shows a profit while the Ford put option showing a loss. Can he sell the Ford put option on Dec.29, in order to show a loss on 2006 tax form, and on the very first trading day of 2007 he sells the GM call option.

Since GM and Ford options are two different companies, and equity options are not marked to market, I guess it is okay for him to do this, right? Got a feeling I maybe missed something.


Quote from Don Bright:

Wash sale rules don't apply to us (mark to market, of course)...you might read through this.

http://www.888options.com/resources/literature/files/taxes_and_investing.pdf

I'm pretty sure that a "like" kind product would disallow the trade you asking about, but you should check more closely.

Don
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Quote from isaac000:

If you buy xyz stock's Jan07 $30 call option and sell it at a loss, and then buy same stock's Jan07 $25 call option less than 30 days after, does that count as a wash sale? Their underlying securities are the same.
More...

If you close Jan07 before the end of this year, it doesn't matter. The tax consequence is the same. You usually don't have to report it as a wash sale with adjustment on your cost basis.

However if you don't close it by the end of this year, it is considered as wash sale.
 
Quote from isaac000:

Don, thanks for the link. According to this guide, non-equity options and Index options are marked to market. Equity options are not.

Let's consider this scenario: an investor bought GM call contracts and Ford put contracts. Since these two stocks are correlated well, at the year end, GM call option shows a profit while the Ford put option showing a loss. Can he sell the Ford put option on Dec.29, in order to show a loss on 2006 tax form, and on the very first trading day of 2007 he sells the GM call option.

Since GM and Ford options are two different companies, and equity options are not marked to market, I guess it is okay for him to do this, right? Got a feeling I maybe missed something.
More...

You can't use marked to market unless you trade prop or file to use MTM. Most retail investors are not.

[edit] If the underlyings are different, it is not a wash sale as Don has explained.
 
Quote from Isaac:

Don, thanks for the link. According to this guide, non-equity options and Index options are marked to market. Equity options are not.

Let's consider this scenario: an investor bought GM call contracts and Ford put contracts. Since these two stocks are correlated well, at the year end, GM call option shows a profit while the Ford put option showing a loss. Can he sell the Ford put option on Dec.29, in order to show a loss on 2006 tax form, and on the very first trading day of 2007 he sells the GM call option.

Since GM and Ford options are two different companies, and equity options are not marked to market, I guess it is okay for him to do this, right? Got a feeling I maybe missed something.
More...

My guess is that you'll be fine with this scenario.

Don
 
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