Might Selling Covered Calls Result in Wash Sales?

Selling covered calls can indeed trigger wash sales under certain circumstances. A wash sale occurs when you sell a security at a loss and then repurchase it, or a substantially identical security, within 30 days before or after the sale. When trading covered calls, if you sell a call option and then buy the underlying stock (or a substantially identical stock) within the wash sale period after closing a position at a loss, you might trigger a wash sale.

This is particularly essential to consider with covered calls, as the nature of this strategy involves both owning the underlying stock and selling call options against it. If you decide to repurchase the same stock shortly after selling it to close a covered call position at a loss, the wash sale rule may apply, potentially affecting the ability to immediately recognize the loss for tax purposes. It is always wise to consult a tax professional to ensure compliance with IRS regulations and to understand the specific implications of your trades.