topic Are 100% of my losses considered wash sales by only trading SPY options every day? in Get your taxes done using TurboTax

Are 100% of my losses considered wash sales by only trading SPY options every day?

Laraby — Sat, 05 Feb 2022 17:15:07 GMT

I trade $SPY options, almost exclusively. Everyday I buy and sell or scalp SPY call and put options, totaling 100s of trades per week, every week.
I assume despite the different expiration dates and strike prices, that these trades are considered “substantially identical”.
since 99% of all my trading are these options, am I to assume that ALL of my losses throughout the entire year are wash sales and therefore disallowed?

If I had 100 trades of SPY options last week, where I spent $15k total but lost $1k, …does this loss not count? Am I to be taxed on money I didn’t make because technically all these trades could be wash sales and any losses are disallowed??
Please help because I am very concerned about having to pay taxes on money I didn’t even make.

Re: Are 100% of my losses considered wash sales by only trading SPY options every day?

JohnB5677 — Sun, 06 Feb 2022 15:05:29 GMT

I assume despite the different expiration dates and strike prices, that these trades are considered “substantially identical”.

Yes, all of these trades are "substantially identical" regardless of expiration date or strike price.

Since 99% of all my trading are these options, am I to assume that ALL of my losses throughout the entire year are wash sales and therefore disallowed?

No, The losses in each loss transaction are added to the basis of the newest transaction. Then any gain in the new transaction is offset by the increased basis.

If I had 100 trades of SPY options last week, where I spent $15k total but lost $1k, …does this loss not count?

Again, The typical trade is closed when it is sold (Short Sale Excluded). When you sell you get the advantage of the increased basis, or you will carryover the loss.

Am I to be taxed on money I didn’t make because technically all these trades could be wash sales and any losses are disallowed??

Based on the timing of the transaction at the end of the year, you may incur taxes on derivatives you had sold at a loss.

Please help because I am very concerned about having to pay taxes on money I didn’t even make.

I understand your concern, but 2021 is gone, and you may have to pay the taxes.

A wash sale occurs when an investor sells or trades a security at a loss, and within 30 days before or after, buys another one that is substantially similar. It also happens if the individual sells the security at a loss, and their spouse or a company they control buys a substantially similar security within 30 days.

The wash-sale rule prevents taxpayers from deducting a capital loss on the sale against the capital gain. Wash Sale Rule

By example: If you initially purchase 100 shares of XYZ and sell at a loss. Then re-purchase 200 Shares of XYZ the Wash sale carryover applies to only the first 100 shares.

If you initially purchase 100 shares of XYZ and sell at a loss. Then re-purchase 50 Shares of XYZ the Wash sale carryover applies to the 50 shares, you get credit for the loss on the original 50

Re: Are 100% of my losses considered wash sales by only trading SPY options every day?

HouseJockey — Tue, 04 Apr 2023 01:20:08 GMT

How does the wash sale rule apply to options for Tesla if I'm not purchasing or selling any shares only options?

Thx!

Re: Are 100% of my losses considered wash sales by only trading SPY options every day?

GeorgeM777 — Tue, 04 Apr 2023 18:24:30 GMT

The wash sale rule does apply to options. For example, if you close an option position at a loss and establish a replacement position within the wash sale period--61 days--then that subsequent position will trigger the wash sale rule and the loss--from the sale of the first option--will be disallowed.

The wash sale rule does not apply to a Trader in securities (or options) that elects mark to market accounting under Section 475(f) of the IRC. However, for investors, and even Traders who are in the business of buying/selling securities, the wash sale rule applies.

@HouseJockey

Re: Are 100% of my losses considered wash sales by only trading SPY options every day?

HouseJockey — Sat, 08 Apr 2023 20:40:57 GMT

Thx for your reply!

So if I understand wash sales effect of options based on this entire thread

SPY and SPX options do not have a wash sale rule effect and any losses experienced are carried over to the next trade and will offset gains if any are made?

Options traded on specific stocks, like Telsa Apple or Microsoft, will be effected by wash sale rules when trading these options regardless of strike price or expiration date of the options being traded. So if a loss would be taken after selling an options contract on a specific ticker, the best course of action would be to wait 30 days before trading any options on that specific ticker again?

Re: Are 100% of my losses considered wash sales by only trading SPY options every day?

fanfare — Sat, 08 Apr 2023 22:02:33 GMT

Look at your 1099-B bottom line from the broker. It will tell you your disallowed loss.

Treatment by TD Ameritrade brokerage: for options, they go by CUSIP therefore the security must be exactly identical to trigger a wash sale.

That won't help you if you rack up a lot of disallowed loss on one option,

then move on to another option and do it again.

@HouseJockey

Re: Are 100% of my losses considered wash sales by only trading SPY options every day?

fanfare — Sat, 08 Apr 2023 22:04:44 GMT

if you are constantly losing, that should tell you something. i.e. you are doing something wrong.

the way to make money on options is to sell premium.

@HouseJockey