What is a wash sale with options?
In one line: A wash sale happens when you sell a stock or option at a loss and buy the same or a substantially identical one within 30 days before or after, so the US tax loss is deferred.
How it works
In the US, if you sell a stock at a loss and buy it again within 30 days, before or after the sale, you can't claim the loss yet. That's the wash sale rule. The loss isn't gone. It's added to the cost of the new shares, so it counts later, when you sell those.
The rule covers "substantially identical" securities, and options can count. Buying a call on the stock can count as buying it back. So can getting shares through a put Assignment. Selling an option at a loss and buying the same option again can count too.
This is general information, not tax advice. The rules are detailed; check with a tax professional or your broker.
An example (hypothetical)
You bought 100 shares of XYZ at $51 (an illustration, not a trade idea). The stock fell, and your $40 covered call, sold for $1.00, was assigned. Counting that premium, you sold at $41: a −$1,000 loss on the shares.
Ten days later, you sell a $40 put for $1.00 to start the wheel strategy again. XYZ dips, and you're assigned. You've now bought 100 XYZ shares within 30 days of the loss.
| What happened | The loss | What the rule does |
|---|---|---|
| Shares called away at $40 | −$1,000 | Can't be claimed yet |
| New shares bought at $40 by assignment | Moves to the new shares | Cost: $40 − $1 premium + $10 deferred = $49 a share |
| You sell the new shares later | Counts then | Part of that sale's gain or loss |
The loss is still yours. It just moved to the new shares and waits for their sale. If you planned to use it this tax year, it may not be there. General information, not tax advice.
Why it matters for sellers
The wheel keeps buying and selling the same stock. That's exactly the pattern the rule looks for. A loss on called-away shares, followed by a put that's assigned within 30 days, can push that loss into the future.
It matters most near the end of the year, when you're counting losses for this tax year. Brokers track wash sales on shares in one account and report the adjusted cost. They may not catch every case, such as trades across two accounts. Keep your own record.
Canada has a similar rule, the superficial loss rule, also with a 30-day window. In a TFSA or RRSP, losses can't be claimed at all.
Questions
Do options count for the wash sale rule?
They can. Buying a call on the stock, or getting the stock through assignment, can count as buying it back. Ask a tax professional about a specific trade.
Is the loss lost forever?
Usually not. It's added to the cost of the new shares and counts when you sell them, unless that sale is a wash too.
Does the wash sale rule apply in an IRA?
Losses inside an IRA aren't deductible anyway. But buying in an IRA soon after a loss sale in a taxable account can still cause a wash sale, and that loss may never count. Check with a tax professional.
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