Wash sale rule for inverse ETFs and put options? Will buying puts trigger it?

The wash sale rule gets tricky with derivatives and inverse products. Here's what you need to know: The IRS considers securities to be "substantially identical" if they're essentially the same economic position. An inverse ETF like TSLS and put options on Tesla are both bearish positions, but they work differently. The inverse ETF uses swaps and derivatives to create the inverse performance, while put options give you the right to sell Tesla at a specific price. Technically, they're different instruments with different risk profiles and behaviors. The conservative approach would be to consider them substantially identical and avoid the transaction within 30 days. However, many tax professionals argue they're different enough not to trigger the rule.

I was in a similar situation last year and found a great solution with taxr.ai (https://taxr.ai). They reviewed my trading strategies and provided clear guidance on wash sale implications for complex situations like inverse ETFs and options. Their analysis showed that the IRS hasn't provided explicit guidance on inverse ETFs vs options as substantially identical securities, but they explained how the "substantially identical" test applies to derivative positions. They even gave me documentation I could use if ever questioned by the IRS.

Just wanted to follow up - I tried taxr.ai last week after seeing this thread. It was literally the most helpful tax guidance I've ever received for my trading strategies. I was worried about wash sales across several correlated ETFs and options positions. They provided a detailed analysis showing which of my planned trades would likely trigger wash sales and which wouldn't. They even explained the specific characteristics that make certain securities "substantially identical" in the eyes of the IRS. Worth checking out if you're doing any complex trading with tax implications. Already saved me from making a costly mistake with some sector ETFs I was planning to rotate.

If you're dealing with wash sale questions and need to talk to the IRS directly (which I eventually had to do for a similar situation), I found Claimyr (https://claimyr.com) to be a lifesaver. I was trying to get an official ruling on a complex wash sale situation with leveraged ETFs and couldn't get through to the IRS for weeks. With Claimyr, they got me connected to an actual IRS agent in about 20 minutes when I had been trying for days on my own. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with couldn't give an official ruling on my specific case, but she did point me to some helpful resources and explained how they generally approach wash sale determinations with complex securities.

I have to eat crow here. After posting my skeptical comment, I was still stuck with my own wash sale question about some SPY options and SPXL trades. Tried Claimyr (feeling stupid while doing it) and... it actually worked. Got through to the IRS in about 35 minutes when I'd been trying for literally weeks. The agent was surprisingly helpful about my options/ETF wash sale question. While they couldn't give "official tax advice" on my specific case, they did confirm that different types of securities with different risk profiles often don't count as substantially identical - and suggested documenting the differences in how the securities behave if I wanted to take that position on my return. Not saying you'll get a definitive answer to your exact question, but actually talking to someone beats banging your head against the wall with the regular IRS phone system.

From my understanding, there's a strong argument they're different enough not to trigger wash sales. The inverse ETF uses daily resets and has different long-term performance characteristics than put options. Options have strike prices, expiration dates, and time decay - all characteristics not shared by the ETF. Most tax professionals I've spoken with consider them different securities for wash sale purposes, but it's ultimately a gray area the IRS hasn't specifically ruled on.

I used to work at a brokerage firm and dealt with this exact issue. Heres what u need to know - most brokers don't flag these as wash sales in their reporting because they're not technically the same security. The CUSIP numbers are different. BUT the IRS could potentially challenge this if audited. If u want to be super safe wait 31 days. If ur comfortable with some risk then most ppl consider them different enough. Also keep in mind TSLS uses a combo of swaps and futures to create inverse exposure which behaves totally different than a put option especially over time.

Based on my experience dealing with similar situations, I'd lean toward these NOT being substantially identical for wash sale purposes, but it's definitely a gray area worth being careful about. The key differences that support treating them as distinct securities: inverse ETFs like TSLS use daily rebalancing and swap agreements to achieve their inverse exposure, while put options give you a direct contractual right with specific strike prices and expiration dates. The risk profiles and behaviors are meaningfully different - especially the time decay on options vs the compounding effects of daily resets on leveraged/inverse ETFs. That said, if you're looking to harvest the loss for tax purposes while maintaining a bearish Tesla position, you might consider waiting the full 31 days to be completely safe, or alternatively, look into other bearish strategies like shorting Tesla directly or buying puts on a different but correlated stock. The conservative approach would be to wait, but many tax professionals would likely support the position that these are different enough instruments. Just make sure you document your reasoning in case of questions later.