I have just learned, no matter how you slice this, it comes up as wash sale
Selling calls, buying puts or Selling puts while you own a stock position can results in WASH SALE unless you are keeping all transaction record and re-write the transaction (Correct /Edit them) in form 8949. IF you are doing Hundreds of transactions, it becomes very-2 difficult. furthermore, it requires enormous amount of time to manually enter those transactions.
- Our govt. set the rules in their Favour not ours....
- Need lot of time to enter & correct each transaction.
- Brokers report each unsold or unexercised put or call as stock transaction (2 calls sold -means you bought & sold 200 share of the underlying stock) especially if you bought & sold with in 31 days or net 61-day time (+/-30-day rule applies from the sale date).
- If your put option is deep in the money, you immediately create a wash sale on existing stock. there are no guidelines for this as to what is considered "Deep in the money" and varies from stock to stock.
- even brokerage companies are under pressure to repost as stock sold & loss (even if you are simply trading calls/put options.
What are our options:
- Don't play this game (stay with stock only and that too don't buy & sell more of the same stock with in 31 days if you own an underlying stock). you might take a small profit but create a wash sale for the stock originally purchased at a higher price.
- Keep accurate transaction record and correct the tax form 8949 (You will need to do this manually)
- GO after US-government to fix the rules.
- Hire a certified professional and have him/her do the taxes for you (can cost good chunk of money). You are still responsible to provide actual transaction record to fix this issue and point out all the wash sale concerns. They are NOT going to look for you on their own.
What I learned from it-
This is NOT for an average investor unless you are methodical and do good record keeping and lucky enough to close options before the expiration date in PROFITS.
