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