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If I buy deep in-the-money put options, and sell not so deep in-the-money (higher strike priced) put options and if both expire worthless, will I not be allowed to deduct the loss incurred from the first set from the gains accrued on the second since the two sets might be considered as "substantially identical securities"?

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A long put is not substantially identical to a short put so there could be no wash sale.

To trigger a wash sale, one would have to acquire a substantially identical security within 30 days before or 30 days after realizing a loss on one (or both) of these securities.

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  • Isn't a long put on stock ABC like selling stock ABC and a short put on stock ABC like buying stock ABC? Apr 13, 2021 at 12:02
  • That is true but they are not substantially identical (SI). Selling a deep ITM put would be SI to long stock but IRS rules are not clear on how deep is deep enough. Apr 13, 2021 at 14:36
  • So does one leave it to the broker decide whether the wash sale rule applies? I don't see much scope to challenge them should they decide to apply the rule. Apr 14, 2021 at 14:29
  • Broker's don't get to randomly choose if it's a wash sale or not. Their computer programs do the calculations. If they make a mistake, you can challenge it. They're not infallible. Apr 14, 2021 at 17:41
  • I see considerable subjectivity in the way "substantially identical" could be interpreted. That's why I felt what I did. In any case, thank you for your answer. Apr 14, 2021 at 18:15

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