7564 / If the owner of an unlisted call sells it prior to exercise or expiration, how is the sale taxed?

For an explanation of the effect of the wash sale rules on transactions involving options, see Q 7536 and Q 7559.

Certain combinations of options, or options held contemporaneously with offsetting positions that have the effect of reducing both the taxpayer’s risk of loss and opportunity for gain, may trigger constructive sale treatment under IRC Section 1259 (see Q 7617 to Q 7621).

The contemporaneous holding of a call option and granting of a put option with respect to an equity interest in a pass-through entity may constitute a “constructive ownership transaction” under IRC Section 1260 (see Q 7622 and Q 7623).

If a call option was part of a tax straddle in the hands of the investor, the tax straddle rules may result in a deferral of the recognition of a loss realized on a sale of the call option and, furthermore, may have unfavorable effects on the characterization of gains and losses realized on positions making up the straddle. See Q 7593 to Q 7614 for details.