Tax harvesting of worthless options

[spindr0]

I've used options for 30+ years but I've never experienced this situation.

I have 3 different worthless long and short OTM Jan puts that I used for months to hedge a long equity position which has since moved up and has been sold. I want to harvest these losers for tax purposes to offset my gains. Closing the short position is easy. Pay the ask price. But what to do about the long puts?

Two of the positions (same number long and short) are a short Jan $50 put, currently at $0.00 x $0.04 and an equal number of long Jan $62.50 put which is $0.00 by $0.12.

Should attempt to sell these as a vertical for a one cent credit? If that doesn't work, I could offer to pay 5 cents to close both, assuming the platform accepts paying to close a credit spread?

And then what to do about the 3rd OTM long put position which is zero bid? How can I close this one, also with a zero bid. I tried selling it for one cent last week but no luck. If there's a closing solution to this position, I wouldn't close the short $50 puts from above since I'd prefer to carry that gain over to 2020.

Any ideas on how to facilitate this? TIA

 

[ironchef]

I faced a similar situation recently. I had 200 contracts of essentially worthless HSBC Jan 2020 options I couldn't give away, lowest you can offer is market ask ($0.00), even then, no taker. Ended up did a calendar: Bought 200 contracts expired Dec 20th 2010 and sold my Jan 2010, same strike as a calendar. Essentially paid someone to take my Jan 2020. Since I have lots of gain this year, it is worth it to pay a little to harvest tax loss.

 

[FSU]

I run into this a lot when I need to get out of options that have no bid. Depending on the option, you may not be able to sell a vertical for even zero.

The key is to pair it with a liquid option. So say you are long the BA Jan 2020 135 puts. There is no way you can sell these for even .01. So what I will do is pair it with another option I need to buy. For example if I want to buy the Jan 2021 150 puts, instead of simply buying them, I will put a spread in to buy the 150 puts and sell the Jan 2020 135 puts. This will get me out of my longs and I will be in the 2021 puts. Additionally when I do this I will often get a better fill then if I buy the puts outright, as it will go into the spread book.

 

[spindr0]

I thought of that possibility but there are two problems.

- I don't want the new BTO position

- Isn't the BTO creating a wash sale violation since the STC position is at a loss? (I don't have TTS)

I think that the answer may be do as you suggest but as soon as there's a fill, immediately STC the newly opened long leg and take the hit on the spread.

 

[spindr0]

I had 200 contracts of essentially worthless HSBC Jan 2020 options I couldn't give away, lowest you can offer is market ask ($0.00), even then, no taker. Ended up did a calendar:

Geez, that's an obvious answer. I should have thought of that. Now all I have to do is find some cheapie option to buy and and get a fill. Thx

 

[FSU]

I thought of that possibility but there are two problems.

- I don't want the new BTO position

- Isn't the BTO creating a wash sale violation since the STC position is at a loss? (I don't have TTS)

I think that the answer may be do as you suggest but as soon as there's a fill, immediately STC the newly opened long leg and take the hit on the spread.

I wouldn't think its a wash sale problem. Similar to Ironchef's idea of the time spread. Both allow you to sell to close your long option, and open a different position. If you do it with a liquid enough option, you can do what you suggest and sell out your long leg by itself to be out of everything.

 

[spindr0]

IRS rules are ambiguous but I would assume, perhaps incorrectly, that the puts are substantially identical since they both profit if XYZ drops.

I have an open order for a calendar roll but so far, no fill. If I get a fill, I'll do the same with my other long put position, converting both to newly opened Dec 27th long puts and then STC all of the Dec 27th puts. I may have to chase a higher strike that is more liquid for this to work. Got a week to kill it so we'll see.

This is giving me a headache because in situations like this with IBKR, the bid and ask of the combo are negative and in the past, I have placed a bad trade because I don't think negative, well at least not with options. So I reverse the legs to make the B/A positive but that means that I have to sell the combo to buy it LOL. You gotta be on IBKR to understand this.

 

[ET180]

I wouldn't think its a wash sale problem. Similar to Ironchef's idea of the time spread. Both allow you to sell to close your long option, and open a different position. If you do it with a liquid enough option, you can do what you suggest and sell out your long leg by itself to be out of everything.

If the contracts are different expirations, it's not a wash sale. It is a gray area, but if you can get away with selling one index ETF and buying the same index ETF from another provider...then wash sales really only apply to the exact same instrument.

 

[ironchef]

I think that the answer may be do as you suggest but as soon as there's a fill, immediately STC the newly opened long leg and take the hit on the spread.

That was what I did. Essentially took a hit on the spread.

If there are no takers, you can do a diagonal instead, making the closer DTE near ATM.

 

[ironchef]

I wouldn't think its a wash sale problem. Similar to Ironchef's idea of the time spread. Both allow you to sell to close your long option, and open a different position. If you do it with a liquid enough option, you can do what you suggest and sell out your long leg by itself to be out of everything.

Just looked at my account on realized gain/loss. Not a wash sale according to broker since both are closed this year.