05-04-2021, 06:23 PM
(05-04-2021, 06:09 PM)NilesMike Wrote: [If I sell a call option that gave me the right to buy 100 shares of T in 60 days for $35/share if T closes over $35 on that day, I have not sold any interest in T. I have sold a unique contract that provided me the right to purchase T 60 days in the future if the contract conditions were met. If, 30 days later, I buy a call option giving me the right to buy 100 shares of T in 30 days for $35/share if T closes over $35 on that day, I have purchased a very different contract due to the remaining expiry period at the time of purchase]
Lots of confusion of terms in that paragraph.
How so?
Day 1 I purchase a call option that provides me the right to purchase 100 shares of T in 90 days (expiry August 1, 2021 for sake of this example) for $35/share (strike) if the price of T is above the strike price on August 1, 2021. I am ignoring early exercise for the sake of simplicity.
Day 30 I sell that call option to someone else for less than what I paid for it (need a loss somewhere in the relevant time period to trigger the wash-sale rule).
Day 60 I purchase a call option that provides me the right to purchase 100 shares in 30 days (expiry August 1, 2021) at $35 strike.
The call I purchased on Day 60 is not the same call I purchased on Day 1 and sold on Day 30. It is a completely different beast, and its pricing is driven by the short duration remaining on the call option (it is a weekly at that point, and likely priced very differently than it was on Day 1, if we are talking about anything other than edge cases like deep OTM/ITM options).
The option is also not an interest in T directly. It is not shares in T. T is not listing my interest in their books as equity. It is a derivative tied in part to the value of T's shares, and which provides the option (but not the obligation) to transact in shares of T at a set price if the contract conditions are met.