Options sale question

[poopy]

Maybe not the best place to ask tax questions, based on the responses. SPX Options are 1256 Contracts and MTM at the end of each year. They are not subject to wash sales. You can buy/sell/buy as many times are you want, but 1256 contacts do not differentiate realized from unrealized gains and losses at year end. You gain nothing by realizing the loss to just enter the trade again at the same or higher price. You only benefit if you can get a better price after fees. From IRS Form 6781. "Mark-to-Market Rules Under these rules, each section 1256 contract held at year end is treated as if it were sold at fair market value (FMV) on the last business day of the tax year. The wash sale rules don’t apply. If your section 1256 contracts produce capital gain or loss, gains or losses on section 1256 contracts open at the end of the year, or terminated during the year, are treated as 60% long term and 40% short term, regardless of how long the contracts were held. The mark-to-market rules don’t apply if you properly and timely identified a section 1256 contract as a hedge."

Good point. Only applies to SN.

 

[Robert Morse]

SN?

Good point. Only applies to SN.

 

[newwurldmn]

SN?

Single names.

 

[UVXY20]

But what if you mix an index option with a SN. For example, close a losing SPX option and replace the position with 1000 SPY?

 

[BMK]

This will answer your question...they discuss options specifically. I recall that for stocks you not only can't repurchase the same stocks...you can't even re- purchase stocks in the same sector.

https://www.taxtips.ca/personaltax/...ficial-losses-and-other-disallowed-losses.htm

That link is about Canadian tax law

The profile page for the OP says he is in Palm Desert, California

 

[BMK]

Ok, it's illegal? Even with selling a slightly different strike and/or expiration?

No, it's not illegal. It is not illegal to execute that type of trade.

Depending on the specific facts and circumstances, it may not produce the tax effects that you are hoping for. And if you do not properly report the transactions on your tax return, e.g., if you claim a tax loss that you are not really allowed to claim, then you are violaing federal tax law.

The trade itself is not "illegal."

 

[BMK]

But what if you mix an index option with a SN. For example, close a losing SPX option and replace the position with 1000 SPY?

That will not generate a wash sale under US tax law.

An SPX option is a cash-settled index option. It does not have an underlying security.

Shares of SPY are not the same security as an SPX option. And an SPX option is not a contract to buy or sell SPY. It is something else.

 

[UVXY20]

Interesting. Thanks.

 

[SimbasPryde]

There's nothing illegal about making any trade.

If your intent behind the trade is tax avoidance, we have clear rules to help avoid that. That's not 'illegal' that's called good tax planning and leveraging the laws allowed.

It would be illegal to hide something you need to report, like transactions that are identical between otherwise separate accounts...