Worthless options tax harvesting options?

I have a few worthless protective put options expiring first week in January. (At IB, if it matters). ~$6.5k loss and I have fairly big realized gains this year, including short term.

Is my only option way to realize the loss before expiration to pay to exchange it for another option that’s not worthless (in one order) and then sell that other option?

This is an automatically-generated Wiki post for this new topic. Any member can edit this post and use it as a summary of the topic’s highlights.

Why not just sell them for anything more than zero and realize the loss? Or is there literally no bid at this point? Either way, IIRC options are not substantially identical to other not-exactly-the-same options, so if you still want protection, you could buy a different put without any wash sale issues.

1 Like

Yes, worth under $0.01 at this point, so directly selling I don’t think will work. (Yes, no bid on books…) Haven’t tried an order at $0.01 though. Jan 15 '21 AAPL $38.75 puts. Originally were LEAPS.

I was seeing on other sites suggestion to make an intentional loss trade to sell it in a spread and then close the other leg. Don’t know if that’s the only option, though. I guess that method should only cost a couple $.

Not looking to replace them just maybe realize this year instead of next week.

Will IB (the broker) buy them from you for zero $? Some brokers do this, some don’t.

(This saved my butt when I was in the exact situation as you, but with (stupid, non-market-guiding Intel distant & way out of the money options)

If not, are you able to sell them directly to someone else (ex: to your friend next door, etc.)? I mean they belong, to you… can you sell them like a car?

1 Like

First I’d try to sell them tomorrow for a penny, even if they are normally quoted in nickels (not sure about these), since you might get lucky and catch a bid.

Alternatively, if you set up some put spread for another put contract you want instead, you may well be able to unload them by taking a kinda bad price on the other leg in combination, which depending on the terms, would be the next best choice. I guess then close the other leg, like you said, if you don’t want new puts.

Failing these, you can do the “Dollar For Lot” paperwork at IB and try to give them the whole position for $1. I’m not sure if this works for options, but it’s worth a shot.

Don’t delay, they may be busy and if the ticket goes thru after EOY, that doesn’t help your taxes.

2 Likes

Edit: Oh no. My previous question in this comment sent me down a rabbit hole. I think both complications are technically accounted for… but it looks like a hassle to file and track. I found reference to “involuntary conversions” and related a “gain deferral election”. Pub 547 for headaches

Hmm…

Wrong hole. In tax, involuntary conversions are not conversions in the options sense/lingo, but things like your house burning down and getting cashed out for the insurance. I saw nothing in 547 that would apply to securities.

2 Likes

It was a different question I had written on that specific comment (Not in the thread first post). I edited out the question (it’s in the history view for that comment now… you would have to hit the pencil to view it.).
Unrelated tax question that probably falls into “99% just claim ignorance”
Or maybe more accurately… “99% of the time not applicable. 99% of those when applicable probably just claim ignorance”

I did a combo order 12X -1worthless puts +1call (a $.5 call with .01 bid/ask).

I think I lost probably .02-.03 on the initial trade but hard to tell. I took forever to sell (was down $15x12 at one point), ended up costing me $3+commisions ($11.24 for the 16 transactions it split up to), so $14.24 total to dump them and realize the $6.9k loss this year.

3 Likes

Back to this (separate than my OP post.).

Had total loss on vehicle I purchased new 18 months prior for a net cost of $20,900 (after fed $7500 credit). Insurance Valuation/payout was just around $30k. So, $10k profit.

However, the $7500 vehicle credit in IRS instructions only is applied to the cost basis if the vehicle is for business use.

So, only about $2500 in taxable “profit”.

My replacement new vehicle cost me $37k OTD (will be $27k after rebates), so since it’s more than I was paid for the old vehicle in the involuntary conversion, I can just substitute it and subtract that ~$2500 from the new vehicle’s cost basis.
Im not sure if my basis in new vehicle is $34.5k or $32k (depends if state rebate grant applies to cost basis).