ERICOPOLY

Buffett sold the Wells Fargo shares. One cannot claim that he shorted the Wells Fargo shares. He sold shares that he owns. That's not what shorting is. That's how ridiculous the argument looks.

I wonder how gaslighting the IRS about the definition of "covered call" will go for you.

The IRS is quite clear that if you purchase a replacement position within 30 days of selling at a loss it's a wash sale. Therefore, it's a wash sale.

I'm quite confident that selling a share is not selling a call. But thank you for the offer of recs, I respectfully decline.

show me one example, that is not your opinion or interpretation of the IRS Code What will matter at your IRS audit is a piece of paper that you can reference as the IRS's opinion. So present your scenario to the IRS and ask them for an official opinion. That's what will matter.

You are referring to "the wash sale". That is the FIRST wash sale. The SECOND wash sale is the subject of interest. It is created when the calls with the adjusted basis from the first wash sale are in turn sold because a new slug of shares have been purchased within 30 days.

I agree with this and you raise a key point: "If you deem yourself to have written an option, the one you acquired in step (2) is not closed and you cannot take the loss."

The IRS excuses a covered call situation because the call that is written exposes you to unlimited losses. No reasonable person could believe that this short call position which exposes you to unlimited upside losses is a material replacement for your prior long shares that you have sold. None of the examples presented thus far are covered calls. They are ALL wash sales.

That is "mathematically equivalent" to selling for a loss less than 30 days after buying the replacement shares. That's a wash sale.

You can take the loss in 4 only if it falls greater than 30 days past the purchase of 1,000 shares made in step 3. That is what I was saying in the beginning. That leaves you stuck with being "doubled down" for 30 days.

Your garden variety wash sale goes like this: 1. Purchase stock 2. Sell stock at a loss 3. Replace the prior long position within 30 days. It is immaterial that you draw a sharpie through the first step because the first step did in fact occur.

1). Sell 300 shares and buy 3 calls You start off net short 300 shares and later take a long position of 3 calls if I understand you correctly. This isn't a "covered call" but it is a covered short stock position and may fall under the same rules that you referenced earlier regarding covered calls. 2). Start 1,000 shares, next sell the shares, next by 3 calls You sold 300 shares that you owned already. Then you bought 3 calls. There is no covered call here.

You have a long position that you sell which washes against the long position that you buy. A covered call would be: Buy stock for $10 and write $12 strike call option. There are NOT two long positions here.

A covered call is one short position paired with one long position. You are presenting two long positions in both scenarios.

Neither case is a covered call.

What are you talking about? What covered call? You are buying calls, not shorting them.

Buying calls does not create a covered call situation. You are holding stock for a loss and then you buy the calls. That's not a covered call. To create a covered call, you own the stock and short the calls -- the short call is "covered" by the underlying stock that you hold.

I'm saying the loss from selling the calls will be disallowed because you have purchased a substantially identical security within 30 days. You have done exactly that, in your scenario: you are trying to take a loss on the calls you sell despite the fact that you have purchased a substantially identical replacement lot of shares within 30 days. That's a wash by definition.

https://www.fool.com/investing/how-to-invest/stocks/stock-wash-sale-rule/#:~:text=Under the wash-sale rules,selling your longer-held shares. Under the wash-sale rules, a wash sale happens when you sell a stock or security for a loss and either buy it back within 30 days after the loss-sale date or "pre-rebuy" shares within 30 days before selling your longer-held shares.

30 day rule also looks back thirty days. It's not merely forward looking. Otherwise you could have foregone the calls altogether and doubled down on shares for a microsecond (or a day) before selling the original shares at a loss.

"Buying a new lot of shares doesn't tie your new shares to your old shares. " 1. When you buy the new shares, they are not yet tied to the old shares or to the calls (which are tied to the old shares). 2. When you sell your calls, the question will be asked "have you purchased within 30 days?" The answer to this question will be YES, so a new wash sale is created and the cost basis of your second slug of shares is adjusted..

$100. Interesting, that will take us back to 2008 pricing again.

Yes you'd have to wait the 30 days after buying the stock back before you can sell the call for a loss. AKA: doubling down.

Clarifying (because I wrote that wrong), I believe that initially you could still short against the box without it being a constructive sale as long as you never delivered the shares, and therefore avoiding the capital gains tax by naked shorting.

Naked shorting used to be a way around it because capital gains were only realized when delivery happened. I wonder if paranoid minds took it the wrong way when I think back upon the Patrick Byrne saga.