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Joined on 1sep 2022.One more interesting fact giving interview in zs associate account(contractor) I never want to work as permanent.
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@BC what do you think about SHOP puts?
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To understand this, you have to first realize what rolling a position is: while as options traders we tend to think of it as continuing a position, in reality, especially for tax purposes, it's closing the old position and opening a new one.
So, let's pretend that I sold a particular option on $XYZ for $100, and the market moved the way I intended, or at least didn't move too far the way I did NOT intend. I "roll" this option for an additional $50 credit. My brokerage might show me collecting an additional $50 and nothing else, but I need to look deeper at what happened.
Suppose in this scenario that the original $100 option was now worth $60. What really happened isn't that I rolled for a $50 credit, but that I closed the original position for a $40 profit and sold a new position for $90 (netting me the $50 credit). In this situation, tax laws would typically make me recognize the $40 gain on my taxes.
Now, let's play the other way: same original $100 position, but the market is NOT my friend. I roll out for a $10 credit to buy myself more time to be correct.
Suppose in this scenario that the new position is also worth $90, but I'm only getting a $10 credit because my original position that I sold for $100 I had to buy back for $180, an $80 loss. IF this and all future related positions are fully closed out by the end of the tax period, I'd take that $80 loss and combine it with any other gains or losses in the year (including from the new position). However, if they are NOT, now wash sale rules can come into play (meaning I can't claim that $80 loss until later).
Some traders (including the one who taught me to trade 8 or 9 years ago) handle this by fully closing out their positions at the end of November each year, and not opening new ones until the new year (to avoid wash sale rules). Others might utilize a mark to market election on their tax return. Others still just deal with the wash sale later.
Really, for the best approach, you should consider hiring a CPA to go over this in more detail regarding your situation. (I am a CPA, but I am not YOUR CPA, and this is informational only, not financial advice.)
Heh, yeah, you caught me with a moment of free time, and this in particular is a passion area of mine (because I actively trade, and have been pretty profitable with it [I average about 45% returns on my trading account per year]).
I found out about the mark to market election because I originally considered it for myself (I started off not so profitable), for a short term shifted to trading items that were automatically mark to market (futures, which also have the advantage of the 60/40 rule, but with leverage can be dangerous [something else I learned the hard way]).
Nowadays, I actually just roll with the wash sale rules, personally. Usually if I'd have a disallowed loss in a year I have enough profit the next year that it gets counted then anyhow, so no harm no foul (at least while trading is not my primary income [that's still my day job] and while I have other secondary income sources [my personal tax business]), largely because the tax impact isn't going to be that significant to me (I expect it to be less than $1k in a given year).
…I thought rolling options has no real implications except the premium collected.
You get assigned stock or have shares called away like normal and only worry about the strike prices, cost basis and premium.
I am embarrassed to say I never tracked the value of the previous contract at close. It can be way more valuable when you buy back the contract.
Again, this is only when rolling puts or calls.
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