922 
Cost of 100 XYZ assigned at 40 ($4,000 + $75) 
Net proceeds of put sale ($400 - $25) 
Net cost basis of stock 
Part VI: Measuring and Trading Volatility 
$4,075 
- 375 
$3,700 
The holding period for stock purchased via a put assignment begins on the day of the 
put assignment. The period during which the investor was short the put has no bear­
ing on the holding period of the stock. Obviously, the put transaction itself does not 
become a capital item; it becomes part of the stock transaction. 
SPECIAL TAX PROBLEMS 
THE WASH SALE RULE 
The call buyer should be aware of the wash sale rule. In general, the wash sale rule 
denies a tax deduction for a security sold at a loss if a substantially identical security, 
or an option to acquire that security, is purchased within 30 days before or 30 days 
after the original sale. This means that one cannot sell XYZ to take a tax loss and also 
purchase XYZ within the 61-day period that extends 30 days before and 30 days after 
the sale. Of course, an investor can legally make such a trade, he just cannot take the 
tax loss on the sale of the stock. A call option is certainly an option to acquire the 
security. It would thus invoke the wash sale rule for an investor to sell XYZ stock to 
take a loss and also purchase any XYZ call within 30 days before or after the stock 
sale. 
Various series of call options are not generally considered to be substantially 
identical securities, however. If one sells an XYZ January 50 call to take a loss, he may 
then buy any other XYZ call option without jeopardizing his tax loss from the sale of 
the January 50. It is not clear whether he could repurchase another January 50 call­
that is, an identical call - without jeopardizing the taxable loss on the original sale of 
the January 50. 
It would also be acceptable for an investor to sell a call to take a loss and then 
immediately buy the underlying security. This would not invoke the wash sale rule. 
Avoiding a Wash Sale. It is generally held that the sale of a put is not the 
acquisition of an option to buy stock, even though that is the effect of assign­
ment of the written put. This fact may be useful in certain cases. If an investor 
holds a stock at a loss, he may want to sell that stock in order to take the loss on 
his taxes for the current year. The wash sale rule prevents him from repurchas­
ing the same stock, or a call option on that stock, within 30 days after the sale. 
Thus, the investor will be "out of" the stock for a month; that is, he will not be