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In Jan 2019, I bought 200 QQQ (ETF) at about $160 and also wrote two covered calls for June 2019 at 170 (higher than the last day price) netting a small premium. Now QQQ is at about 185 so it will be assigned to me unless I cover it.

I am thinking to cover the existing call of $170 and simultaneously write another call at $180 for Dec 2019 so I get few cents of immediate profit without giving any further cash or stock.

My main question is, will these two transactions together will trigger a wash sale?

What happens to holding period (as new covered call will be at lower than the last day price)? I plan to hold the position so I pay long term capital gains.

I looked at Can buying covered calls to close trigger a wash sale and Are two options ever too similar for taxes? but they do not relate to the situation above.

Some other links to consider are:

EDIT

I like the idea from @BobBaerker (from the comments):

Here's an out of the box suggestion. Covered calls and short puts are synthetically equal. The Jun $170 CC is equal to a Jun $170 put. Buy the Jun $170 put to offset your position and sell the Dec $180 put to open (execute as diagonal spread). Run the numbers to see how close they are. Comes June, if CC is assigned, no wash sale. If not, long put locks in CC position (no loss). Post assignment, make sure to account for interest earned on QQQ proceeds as well as modest dividend lost. I don't know if this runs afoul of tax law and even if so, will they pick it up?

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    Who cares if it triggers a wash sale? Do you know what the result of a wash sale is?
    – quid
    Commented Apr 18, 2019 at 17:19
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    Why do you care? If there is a loss and you have a purchase within 30 days the amount of the loss is added to the basis of the purchase delaying the realization of the loss. In most situations it makes no real functional difference whether or not a loss is washed.
    – quid
    Commented Apr 18, 2019 at 17:53
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    If you intend to let assignment occur if ITM in December then all of this is just accounting paperwork (a wash sale on the June $170 is deferred but not lost) What I would be more focused on is the profit potential from the date of the roll until December. Are you realizing enough premium per day for the roll to make it worthwhile for the next 6 months or are you just digging in because you don't want to give up the underlying?
    – Bob Baerker
    Commented Apr 18, 2019 at 18:29
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    @bob-baerker I intend to hold on the position as I believe en.wikipedia.org/wiki/Mean_reversion_(finance) so at some point in time may not be Dec 2019, but June 2020 it will come to normal
    – riya
    Commented Apr 18, 2019 at 19:36
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    Here's an out of the box suggestion. Covered calls and short puts are synthetically equal. The Jun $170 CC is equal to a Jun $170 put. Buy the Jun $170 put to offset your position and sell the Dec $180 put to open (execute as diagonal spread). Run the numbers to see how close they are. Comes June, if CC is assigned, no wash sale. If not, long put locks in CC position (no loss). Post assignment, make sure to account for interest earned on QQQ proceeds as well as modest dividend lost. I don't know if this runs afoul of tax law and even if so, will they pick it up?
    – Bob Baerker
    Commented Apr 18, 2019 at 19:54

1 Answer 1

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You asked: Can closing covered call and opening a new coverd call trigger wash sale?

I believe the answer is yes. For example, if the option you buy back has 300 days to expiration and the new option has the same expiration and its strike price is 1% higher.

In this specific case you site, the expiration dates are different and the strike price is significantly different. Therefore, the wash rule should not apply.

If you own a stock and you protect it with a long put position then the dividends from the stock are not qualified.

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  • It can trigger a wash sale but the wash sale should not apply? Here's the opinion from GreenTrader, a very reliable tax source of tax issues for investors and traders. As we stress in our extensive content on wash sale loss deferral rules, Section 1091 rules for taxpayers require wash sale loss treatment on substantially identical positions across all accounts including IRAs. Substantially identical positions include Apple equity, Apply options and Apple options at different expiration dates on both puts and calls.
    – Bob Baerker
    Commented Jun 14, 2020 at 18:19

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