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Say I have 100 shares of ABC that are currently short-term.

If I sell an ABC put credit spread and close either or both legs within 30 days, would it reset the holding period on the 100 shares of underlying stock? I am guessing no, but IRS rules with options are often vague.

I gather that if the 100 shares were long-term originally, then the holding period on the shares would still be long-term.

The case I'm considering is that if I close the short put leg first, the long put leg might then be considered a protective put on the shares and reset the holding period.

US tax purposes.

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Yes, IRS rules regarding options are vague and unclear. Often, even the experts aren't sure what the tax implications are.

The rule is that if the stock is owned for less than one year and a protective put is purchased, the stock's holding period resets. If owned for more than one year then the stock's gain or loss is considered long-term regardless of whether the put is exercised, sold or expires worthless.

The first hurdle is then if you close the short leg of a put credit spread while owning 100 shares, does the remaining long put become attached to the shares as a protective put? I don't know.

As an aside, if you closed the long leg of the spread, would the short leg attach to the shares and then there's an issue of a qualified versus an unqualified covered call? I don't know.

This conundrum is such a specialized niche in the market that I bet that most tax accountants wouldn't know the answer.

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  • I also don’t know whether buying an additional 100 shares before unwinding the short leg would even protect the original lot.
    – vphilipnyc
    Jul 9 at 23:45
  • Buying additional long shares would not protect an existing 100 shares since both are long positions. Jul 10 at 0:46

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