Hi all, I currently have ITM covered call positions and am contemplating converting these into call debit spreads to avoid wash sales by closing the call debit spreads 30+ days later to realize net short-term capital gains losses. A few days ago, I purchased long-dated calls on the same underlying stock, so I cannot simply close the covered call without triggering a wash sale (to the best of my knowledge). My investment thesis for the underlying stock has changed within the time frame of the covered call position, and I think it's in my best interest to hold the stock until it's at least eligible for long-term capital gains (currently held for less than 12 months). I'm in the highest tax bracket.

    Assuming the stock continues to maintain today's price by the time I can close out the proposed call debit spread in 30+ days and I avoid early assignment, are there any other issues I should be aware of?

    My concern would be that the recently purchased long-dated call is too similar to the short-dated calls used to open the call debit spread, therefore triggering a wash sale violation.

    Thanks so much for any insight.

    Positions:

    MU cost basis average $300

    MU covered calls at 480 and 530 strikes expiring August '26 and July '26, respectively

    Recently purchased MU 600 strike calls expiring June '27

    Multiple deep ITM calls expiring in January and June 2027, some would realize short- and others long-term capital gains

    *I'm considering purchasing 490 and 540 strike calls expiring August '26 and July '26 to open the call debit spreads

    *The difference in capital gains tax by having the covered calls assigned at short-term versus holding them until long-term is in the six figures, so there's substantial incentive for me to avoid this

    Converting ITM CC to call debit spread to avoid wash sale and reduce short-term capital gains tax?
    byu/pantaloonsss inoptions



    Posted by pantaloonsss

    1 Comment

    1. tradervishal on

      Had a similar trade yesterday on SPY — looked strong at first but lost momentum really fast
      Made me realize I might be entering a bit too early lately.

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