If an investor buys a stock and goes long a put on the same day (married put) and then (either immediately or some time in the future - is there a difference?) sells the option, do the sale proceeds of the option get subtracted from his cost basis? If not, what’s stopping investors from using this as a tax avoidance strategy?
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It took me a while to find anything on this topic, but I found this snippet on married puts from the NY Bar Association (random, I know):
If the option position were terminated through a closing transaction resulting in a loss on the option, no current loss would be recognized, and the tax basis of the underlying stock would be increased by the amount of the net loss on the option. If a gain resulted on closing the option, the gain would be taxed currently as short-term gain. In the case of a put, such gain would be long-term if the married positions had been held for the long-term holding period.
Regardless, this specific topic is very unlikely to be tested. Just know the basics of married puts and you’ll be well prepared.
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Ah, thanks for doing the research
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