05-04-2021, 06:33 PM
(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.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.
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.
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: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.(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.
