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Suppose an investor owns 100 shares of the XYZ stock in a qualified covered call position. He is also short puts on the XYZ stock. All of this is down outside of an retirement accounts. He has an unrealized gain on the calls on the XYZ stock and an unrealized loss on the puts. He then buys back the puts realizing the loss. The gain on the XYZ calls is bigger than the loss on the XYZ puts. I claim he cannot take the loss on his income tax return.

Would that still be true if the stock and the short call position was inside an IRA?

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    "I claim he cannot take the loss on his income tax return." based on what?
    – D Stanley
    Commented Jun 20 at 13:23
  • @DStanley I claim he cannot take the loss, in the first case, because of the straddle loss limit rule. That is, the short call and short put form a straddle. Instead the loss is added to the cost basis of the position. Do you disagree?
    – Bob
    Commented Jun 20 at 14:42
  • I am not familiar with that rule, but I can see how it could be used for tax loss harvesting (sell one side of the straddle to realize a loss and get an instant tax break).
    – D Stanley
    Commented Jun 20 at 16:40
  • @DStanley The effect of the straddle loss rule is to limit a tax payer ability to harvest a tax loss.
    – Bob
    Commented Jun 21 at 1:46
  • @DStanley What I wrote might all be true only if the strike price on the puts was about the same as the strike price on the calls. I am not sure.
    – Bob
    Commented Jul 7 at 3:25

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