Put Options or Collar Can Reset Your Short-Term Capital Gains Holding Period For Stocks To Zero, Or Worse
It's a bit complicated, but under IRS Title 26, most* positions which combine normal stocks and options on that stock which hedge or lower the risk of losses are considered a "straddle" for tax purposes.
https://www.law.cornell.edu/cfr/text/26/1.1092(c)-1:
(a) In general. Section 1092(c) defines a straddle as offsetting positions with respect to personal property. Under section 1092(d)(3)(B)(i)(I), stock is personal property if the stock is part of a straddle that involves an option on that stock or substantially identical stock or securities.
Stocks or options held longer than 12 months may be subject to lower long-term capital gains tax rates. However, if certain option positions are purchased on a later date than the stock, but within the initial 12-month period, this resets the stock's short-term holding period to begin again from zero on the day after the option positions are closed.
So if you hold a stock for…
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