Selling deep ITM puts to harvest losses

[zdreg]

If you really want to take the losses this year, you can do it with call options. What you do is sell the stocks for a loss and buy a cheap short term call option. Next day, buy back the stocks you sold. On the following day sell the call option for a loss. This loss can be deducted because the call option purchase is a wash sell. Your loss is the cost of the call option plus the stock loss. The additional stock purchase is considered a new security transaction.

can you please provide an example?

 

[swingtrader123]

can you please provide an example?

You own 100 shares of GE. Sell the 100 shares of GE for a loss of $10. Next, buy 1 Sept 22 call 24.5 strike for $0.04. The call purchase will trigger the wash rule, so the cost basis for the call is $10.04. Next day buy back 100 shares of GE. Following day, sell the Sept 22 call for $0.02 giving you a loss of $10.02. You have just harvested your losses.

You can do the same without options if you have used FIFO accounting in the past. Using just stocks, do the following: You own 100 shares of GE. Buy another 100 shares of GE, this doubled your holding to 200 shares of GE. Next day, sell 100 shares of GE for a lost of $10. This lost is tax deductible if you used FIFO accounting. If you used LIFO in the past then only the options method will work.

 

[ET180]

You own 100 shares of GE. Sell the 100 shares of GE for a loss of $10. Next, buy 1 Sept 22 call 24.5 strike for $0.04. The call purchase will trigger the wash rule, so the cost basis for the call is $10.04. Next day buy back 100 shares of GE. Following day, sell the Sept 22 call for $0.02 giving you a loss of $10.02. You have just harvested your losses.

You can do the same without options if you have used FIFO accounting in the past. Using just stocks, do the following: You own 100 shares of GE. Buy another 100 shares of GE, this doubled your holding to 200 shares of GE. Next day, sell 100 shares of GE for a lost of $10. This lost is tax deductible if you used FIFO accounting. If you used LIFO in the past then only the options method will work.

Interesting. Surprised that it's that easy to get around the wash sale rule. I'll ask my accountant about it.