Posts: 1,024
Threads: 8
Joined: Aug 2018
Reputation:
16
(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.
Posts: 6,404
Threads: 47
Joined: Aug 2018
Reputation:
68
(05-04-2021, 04:47 PM)Otter Wrote: (05-04-2021, 04:34 PM)fenders53 Wrote: (05-04-2021, 04:30 PM)Otter Wrote: I would take it one step further, too, and say there is a valid argument to be made that options with identical strikes/expiries, but purchased at different times, are not "substantially identical." Unlike stocks, options are time-limited, and value decay due to the running of time (Theta) is a very real driver of option value.
The risk profile of an option with two months on the clock is very different from an option with 30 days left. It is quite possible, in the context of options, to purchase an option within the wash sale period that is materially different from the "same" option when it was sold. Stocks don't really have that theta time decay component.
I suspect these complexities are one of the reasons the IRS hasn't published any rules.
Oh you are really reaching now. Judge doesn't want to hear about no theta nonsense lol. An AUG strike 50 is an AUG strike 50. I'd pay to watch you argue that though. 
That would be the last argument in the brief. Give the judge something to deny and uphold the other two arguments, while emphasizing the unique nature of options vs. stocks. Unless, of course, your client bought AUG strike 50s on different dates and that's the only argument you can run with.
You can really start arguing how many angels can dance on the head of a pin once you start nit-picking the differences between stocks and options. If I have a wash-sale of 100 T shares, it means that within the wash-sale period, I obtained 100 other T shares. I still own 100 shares of T at the end of the day. Everything is substantially identical. 100 T is 100 T.
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.
(05-04-2021, 06:23 PM)Otter Wrote: (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.
I agree with Mike. And I am fully confident you could make a compelling argument against that thesis if we gave you 30 minutes to prepare. Stop me when I tell a lie.
Posts: 1,024
Threads: 8
Joined: Aug 2018
Reputation:
16
You buy and sell options all the time. The timing of the options purchase is a huge factor in the value of an option, even over time periods as short as the 61-day window that can trigger the wash-sale rule. I don't buy weeklies, but I'm happy to sell them. Theta usually works in the seller's favor on a weekly. Buying weeklies is wallstreetbets craziness.
The value of a stock can fluctuate over a 61-day period, but the wash-sale rule recognizes that you bought and sold the same asset. I can hold the T I purchased as long as I want to in the hopes that it will do what most other stocks do and go up over time, making me a profit (maybe not with T, LOL). That can't be said of an option, which comes with a hard expiration date and a binary outcome on expiry.
Posts: 778
Threads: 15
Joined: Nov 2013
Reputation:
5
THIS [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). ]
IS NOT THAT [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]
I understand your points but you may be confusing some readers by switching between buying and selling and insinuating that they both convey a right rather than obligation depending on buying or selling.
Additionally, an option does not become a weekly by having X amount of days left. An option chain is either a weekly or a monthly chain. Important in that often times a weekly does not have the volume to be very liquid. The liquidity is typically in the monthly. I just fat fingered a weekly instead of a monthly, getting in no problemo, now try to get out! No bueno even though the trade is up handsomely but no volume to fill me. ARRGH
Posts: 852
Threads: 5
Joined: Aug 2013
Reputation:
6
(05-04-2021, 04:01 PM)fenders53 Wrote: (05-04-2021, 03:39 PM)ChadR Wrote: (05-04-2021, 03:04 PM)vbin Wrote: (05-04-2021, 02:48 PM)fenders53 Wrote: (05-04-2021, 02:39 PM)vbin Wrote: Does wash sale rule applies while rolling options?
If you are moving the date or strike I can't imagine that works. It's not the same security/investment. Chad would know.
I find differing opinions online. It's not clear. Some say it doesn't, some say it does. @ChadR any idea?
The reason you find differing opinions is because the Treasury Department hasn't issued any regulations on this. The conservative route is yes they do apply since you are going in the same direction with the old option as the new option. The aggressive route is no they don't apply since it is a different option with different dates and or prices.
Now it's getting taken out of your hands in some cases. If the brokerage company you uses says it's a wash sale and reports it to the IRS as one, you're pretty much stuck reporting it that way. Now you can not report the wash sale, but you might get audited over it. You would have to fight it all the way to the Supreme Court. This might get the Treasury Department to finally issue some regulations on this. But how much are you going to be out in attorney and CPA fees to get them to issue regulations on this?
Now wash sales don't apply to gains at least.
Thanks Chad. Not exactly what I thought you would say, but it makes sense. We are clearly selling derivatives of the exact same security, so it's not so hard to make the case we are subject to the wash rule. I guess I will keep my option trades in my tax advantaged accounts forever.
Not exactly sure what you mean by directional though. In an upside down trade I can, and have, rolled my future strike up or down after considering time value when the trade occurred. In the end buying or selling a put or call is clearly a bullish or bearish trade by definition.
Same direction in that both options are betting on the stock going up or both options are betting on the stock going down.
Posts: 1,024
Threads: 8
Joined: Aug 2018
Reputation:
16
(05-04-2021, 07:13 PM)NilesMike Wrote: THIS [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). ]
IS NOT THAT [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]
I understand your points but you may be confusing some readers by switching between buying and selling and insinuating that they both convey a right rather than obligation depending on buying or selling.
Additionally, an option does not become a weekly by having X amount of days left. An option chain is either a weekly or a monthly chain. Important in that often times a weekly does not have the volume to be very liquid. The liquidity is typically in the monthly. I just fat fingered a weekly instead of a monthly, getting in no problemo, now try to get out! No bueno even though the trade is up handsomely but no volume to fill me. ARRGH
Yeah, that paragraph in the originally quoted post wasn't clear. I was talking about selling the call option in the sense of selling to close for a loss a call that I had bought to open previously, to trigger the applicability of the wash-sale rule. Essentially, a poorly worded attempt to articulate what I describe on Day 30 in the subsequent post.
I also got sloppy calling them weeklies, but was trying to distinguish between an option purchased with 90 days remaining to expiry vs. something that wins or loses within 30 days. WSB has a crude term for OTM options expiring soon, but I was trying to avoid using it.
Posts: 2,398
Threads: 54
Joined: Jul 2013
Reputation:
35
You guys are speaking a foreign language to me. Anyone buy any DGI stocks lately? ?
Posts: 6,404
Threads: 47
Joined: Aug 2018
Reputation:
68
(05-04-2021, 08:26 PM)EricL Wrote: You guys are speaking a foreign language to me. Anyone buy any DGI stocks lately? ?
They sell them on this thread as fast as they buy them lol. I added some TSM. I'd like to think that is a DGI stock.
Posts: 1,631
Threads: 54
Joined: Oct 2020
Reputation:
6
05-05-2021, 06:41 AM
(This post was last modified: 05-05-2021, 06:44 AM by ken-do-nim.)
(05-04-2021, 08:26 PM)EricL Wrote: You guys are speaking a foreign language to me. Anyone buy any DGI stocks lately? ?
I had the same impression.
I don't have any new money coming to me for a long time*, but I'm thinking, once the nasdaq warms up a bit - maybe in June? - to liquidate my taxable account TQQQ and pick up IBM and KMI.
* I'm pulling out the dividends and sending them to my checking account until at least October.
Posts: 6,404
Threads: 47
Joined: Aug 2018
Reputation:
68
The forum is small and this is our socializing thread. Some days you are just going to have to put up with us arguing about macro economics and option tricks lol.
Posts: 1,024
Threads: 8
Joined: Aug 2018
Reputation:
16
(05-05-2021, 07:18 AM)fenders53 Wrote: The forum is small and this is our socializing thread. Some days you are just going to have to put up with us arguing about macro economics and option tricks lol.
Haha, true. Right now my DGI stuff is mostly doing what I want and throwing off dividends. Didn't have much exposure to growth stuff, so have been building a portfolio of that lately. No harm in letting that run for 20 years and seeing if any turn out to be home runs while the boring DGI stuff slowly and steadily does its compounding thing. I have a hard time getting many DGI stocks to pass my value screens at the moment. Unless the reddit kids get deep into the psychedelics, a Ute like DUK isn't going to run 500% in a year, so buying it at a P/E of 19.6 (well above its 10yr average of 17.5) probably carries a fairly high risk of subpar returns.
I buy stuff that is unloved, and usually start buying too early while it is still sliding. I could have waited to buy some of the tech stuff I bought recently, but had no way of knowing when I bought if it would slide further, or if the dip was just a blip like dozens of others over the past several years.
Fed printer still seems to be running though, and someone told Yellen to hush and get on the Brrrrrrrrrrrrrr train late yesterday, so I think the gravy train to the markets will continue for the short term. I'd be shocked if there are any rate hikes before the midterms in 2022.
Posts: 6,404
Threads: 47
Joined: Aug 2018
Reputation:
68
(05-05-2021, 08:04 AM)Otter Wrote: (05-05-2021, 07:18 AM)fenders53 Wrote: The forum is small and this is our socializing thread. Some days you are just going to have to put up with us arguing about macro economics and option tricks lol.
Haha, true. Right now my DGI stuff is mostly doing what I want and throwing off dividends. Didn't have much exposure to growth stuff, so have been building a portfolio of that lately. No harm in letting that run for 20 years and seeing if any turn out to be home runs while the boring DGI stuff slowly and steadily does its compounding thing. I have a hard time getting many DGI stocks to pass my value screens at the moment. Unless the reddit kids get deep into the psychedelics, a Ute like DUK isn't going to run 500% in a year, so buying it at a P/E of 19.6 (well above its 10yr average of 17.5) probably carries a fairly high risk of subpar returns.
I buy stuff that is unloved, and usually start buying too early while it is still sliding. I could have waited to buy some of the tech stuff I bought recently, but had no way of knowing when I bought if it would slide further, or if the dip was just a blip like dozens of others over the past several years.
Fed printer still seems to be running though, and someone told Yellen to hush and get on the Brrrrrrrrrrrrrr train late yesterday, so I think the gravy train to the markets will continue for the short term. I'd be shocked if there are any rate hikes before the midterms in 2022.
Agreed, there is just so much we can do with PG and JNJ on a daily basis. I also come here for the differing viewpoints, some debate and comradery. We know each other's temperment and we can disagree without blowing up the thread. Not many other places on the internet where that is true. I fully support your right to be wrong Otter. Just kidding, I mostly agree with you. I doubt rates are increased before 2023 unless inflation gets crazy which is not out of the question. Back in the day a real FED Chief that wasn't scared of politicians would raise them a quarter point this summer just to get the market's attention. There is a helluva lot more going on with regards to employment than a tiny change in interest rates.
|
