Is this stock and option trade considered a wash loss?

Question

I bought a stock and call and put on it. I made a profit on the stock and took a loss on a call and put option. If I buy the stock and different put and call option strike prices within 30 days, is it considered a wash for my options losses for tax purposes?

Answer 1

Good question. Pub 550 deals specifically with straddles.

Coordination of Loss Deferral Rules and Wash Sale Rules

Rules similar to the wash sale rules apply to any disposition of a position or positions of a straddle. First apply Rule 1, explained next, then apply Rule 2. However, Rule 1 applies only if stocks or securities make up a position that is part of the straddle. If a position in the straddle does not include stock or securities, use Rule 2.
Rule 1. You cannot deduct a loss on the disposition of shares of stock or securities that make up the positions of a straddle if, within a period beginning 30 days before the date of that disposition and ending 30 days after that date, you acquired substantially identical stock or securities. Instead, the loss will be carried over to the following tax year, subject to any further application of Rule 1 in that year. This rule will also apply if you entered into a contract or option to acquire the stock or securities within the time period described above. See Loss carryover, later, for more information about how to treat the loss in the following tax year.

Example.

You are not a dealer in stock or securities. On December 2, 2006, you bought stock in XX Corporation (XX stock) and an offsetting put option. On December 13, 2006, there was $20 of unrealized gain in the put option and you sold the XX stock at a $20 loss. By December 16, the value of the put option had declined, eliminating all unrealized gain in the position. On December 16, you bought a second XX stock position that is substantially identical to the XX stock you sold on December 13. At the end of the year there is no unrecognized gain in the put option or in the XX stock. Under these circumstances, the $20 loss will be disallowed for 2006 under Rule 1 because, within a period beginning 30 days before December 13, and ending 30 days after that date, you bought stock substantially identical to the XX stock you sold.