How does the wash-sale rule apply towards debit spreads’ trading?
January 19th, 2008 | by Adam |
malivo asked:
I understand the implications with the wash-sale rule with stock and option’s trading, but it is interesting to see how it works with debit spreads, where for example you buy one 50 December call of XXX and in the same time sell one 55 December call of XXX.
I understand the implications with the wash-sale rule with stock and option’s trading, but it is interesting to see how it works with debit spreads, where for example you buy one 50 December call of XXX and in the same time sell one 55 December call of XXX.
3 Responses to “How does the wash-sale rule apply towards debit spreads’ trading?”
By Sue on Jan 21, 2008 | Reply
I’ve never actually heard of debit spreads. Can you explain what that is?
By zman492 on Jan 25, 2008 | Reply
The wash sale rule does not apply because you have not closed a position for a loss, and when you close the spread the options you will not be replacing a position closed for a loss.
However, the straddle rules do apply. See page 58 of
Addendum
rhsaunders is absolutely wrong is saying the straddle rules do not apply. The two positions are absolutely offsetting and the straddle rules apply.
Read the definition of offsetting positions in Publication 550.
By rhsaunders on Jan 26, 2008 | Reply
Good question. My take on it is that the securities are different so the 30-day wash sale rule does not apply. But if there is any significant tax money involved, I’d check with an expert.
Postscript: I reviewed the material cited by the previous responder; it is worth reading. But the straddle rules do not apply in your case because you are not carrying offsetting positions.