The Wash Sale Rule and Options
Reviewed by Leon Moyer - Published October 9, 2026 - Last reviewed October 9, 2026
In this lesson
Explain the wash sale rule's 30-day window, identify how option trades can trigger or be caught by it, and calculate the basis adjustment for a disallowed loss.
The wash sale rule disallows a loss on stock or securities, including options, if within 30 days before or after the losing sale you buy substantially identical stock or securities, or a contract or option to buy them. The loss is not erased: it is generally added to the cost of the replacement, which postpones it until you dispose of that position.
General education, not tax advice. This lesson describes U.S. federal income tax rules in general terms, from 26 U.S.C. 1091 and IRS Publication 550 (2025 edition). The IRS gives no bright-line test for when two options are "substantially identical," rules change, state rules differ, and individual situations differ. Consult a qualified tax professional about your own trades.
Options traders run into this rule more often than stock investors, because options make it easy to stay in a position after taking a loss. This is the third lesson in the tax module; How Options Are Taxed covers the basics it builds on.
What is a wash sale?
Publication 550 says a wash sale occurs when you sell or trade stock or securities at a loss and, within 30 days before or after the sale, you:
- buy substantially identical stock or securities,
- acquire substantially identical stock or securities in a fully taxable trade,
- acquire a contract or option to buy substantially identical stock or securities, or
- acquire substantially identical stock for your IRA or Roth IRA.
The rule also applies if you sell and your spouse, or a corporation you control, buys substantially identical stock. And it covers options directly: Publication 550 says the wash sale rules apply to losses from sales or trades of contracts and options to acquire or sell stock or securities. The code itself, in Section 1091(a), says "stock or securities" includes contracts or options to acquire or sell stock or securities, except as regulations provide.
How long is the wash sale window?
The window runs 30 days before the losing sale through 30 days after it, so it covers the sale day and the 30 days on each side. A purchase made before the sale counts just as much as one made after.
The wash sale window: 30 days on each side of a losing sale
30 days before
Window opens; a purchase here counts
Sale at a loss
Shares, securities or an option
30 days after
Window closes
What counts as substantially identical with options?
Publication 550 says to consider all the facts and circumstances, and that stocks or securities of one corporation are ordinarily not substantially identical to those of another. It does not give a test for comparing two options, so the honest answer has three tiers:
- Clearly caught: buying the same stock back, buying a call on the same stock (an option to buy it, named in the list above), or buying back the same option contract you just sold at a loss.
- Unsettled: replacing an option sold at a loss with one of a different strike or expiration on the same stock. Whether that is substantially identical depends on the facts, and the IRS has not drawn a line for traders.
- Usually not: stock or options of a different company, which Publication 550 says ordinarily are not substantially identical.
If you rely on the middle tier, decide with a tax professional before year end, not after. Index options that are Section 1256 contracts are partly different: the Form 6781 instructions say the wash sale rules don't apply under the year-end mark-to-market rules for these contracts; ask a tax professional about other Section 1256 losses.
How can option trades trigger or be caught by it?
Four patterns come up most often:
- Stock loss, then a call. You sell XYZ shares at a loss and buy an XYZ call within 30 days to keep upside. The call is an option to buy substantially identical stock, so the share loss can be disallowed.
- Bought option loss, then the same option. You sell a call or put you bought at a loss and buy the same contract back within the window. That is a wash sale on the option itself. A written option closed at a loss and written again is closer to pattern 4; ask a tax professional.
- Stock loss, then an assigned put. Assignment on a short put buys the shares, so a put assigned within 30 days of a losing sale of the same stock is a purchase inside the window. Whether merely writing a put near the window counts is a facts-and-circumstances question for a tax professional.
- Rolling a losing short position. Writers roll often. Whether a roll creates a wash sale depends on whether the new position is substantially identical to the one closed at a loss, which is a facts-and-circumstances question.
Worked example
Example: rebuying a long call you sold at a loss
All figures are hypothetical and before fees.
- You buy an XYZ 50 call for 4.00, or $400, and later sell it for 1.50, or $150: a $250 loss.
- Five days later you buy the same XYZ 50 call for 1.80, or $180. That is within 30 days, so the $250 loss is disallowed.
- The disallowed $250 is added to the new call's cost: $180 + $250 = a $430 basis. Publication 550 also says the new position's holding period includes the old one's.
- You later sell the new call for 3.00, or $300: a $130 loss ($300 - $430).
Illustrative and hypothetical. The ticker and prices are invented for teaching, and the figures exclude commissions, fees, margin interest and taxes, which reduce real results. Past or hypothetical outcomes do not indicate future results.
Where a disallowed wash sale loss goes
The repurchased XYZ 50 call
Without the rule, the two trades would show a $250 loss and a $120 gain, a $130 net loss. With it, the first sale shows no deductible loss and the second shows the full $130. The total is the same; the timing moved.
The wash sale loss is postponed, not lost
If it were not a wash sale
As a wash sale
That timing can matter at year end. A loss taken in December and repurchased in January is postponed into the year the replacement is sold.
Does the 1099-B show every wash sale?
No. Publication 550 says box 1g of Form 1099-B shows a disallowed wash sale loss when the securities sold were covered securities and the replacement had the same CUSIP and was bought in the same account. A stock and an option on it have different identifiers, and your other accounts are invisible to each broker. Publication 550 is explicit that you cannot deduct a wash sale loss even if it is not reported on Form 1099-B.
When you report one yourself, the Form 8949 instructions use code "W" and enter the nondeductible loss as a positive adjustment.
Check your understanding
You bought 100 XYZ shares at $60 and sell them at $52, then buy 100 XYZ shares at $54 twenty days later. What is your basis in the new shares?
Show answer
$6,200. The $800 loss is disallowed and added to the $5,400 cost of the new shares.
You sell XYZ shares at a loss and buy an XYZ call 35 days later, with no other XYZ purchases around the sale. Is that a wash sale?
Show answer
No. The window runs 30 days before and 30 days after the sale, and day 35 is outside it.
You sell XYZ shares at a loss on March 1, 2025. Between which dates would buying an XYZ call make it a wash sale?
Show answer
January 30 through March 31, 2025: the 30 days before the sale, the sale day and the 30 days after.
Key takeaways
- A wash sale is a loss on stock or securities, including options, with a substantially identical purchase within 30 days before or after.
- Buying a call on the same stock is on the IRS list of purchases that trigger it.
- Different strikes or expirations on the same stock are a facts-and-circumstances question with no IRS bright line.
- The disallowed loss generally moves into the replacement's basis, so it is postponed, not lost; an IRA replacement gets no basis adjustment.
- Your 1099-B may flag only same-CUSIP, same-account wash sales; the rule applies regardless.
Common questions
Do wash sale rules apply to options?
Yes. Publication 550 says the wash sale rules apply to losses from sales or trades of contracts and options to acquire or sell stock or securities. Buying an option to buy substantially identical stock within the window can also turn a losing stock sale into a wash sale.
Can buying a call trigger a wash sale?
Yes. Publication 550's list of what makes a wash sale includes acquiring a contract or option to buy substantially identical stock or securities within 30 days before or after a sale at a loss. Buying a call on the same stock within that window can therefore disallow the loss.
Is the loss gone forever after a wash sale?
Usually not. Publication 550 says the disallowed loss is added to the cost of the new stock or securities, which postpones the deduction until you dispose of them. The exception is a replacement bought in an IRA or Roth IRA: the loss is still disallowed, and Publication 550 excludes that case from the basis adjustment.
Does my broker catch every wash sale?
No. Publication 550 says Form 1099-B shows a disallowed wash sale loss for covered securities when the replacement had the same CUSIP and was bought in the same account. A stock sold at a loss and a call bought on it, or trades in two accounts, may not be flagged, and the loss is still not deductible.