🏦LTB
← Series 7: Investment Information & Recommendations
Series 7 practice questionmediumTax Implications — Wash Sale Rule

Which of the following transactions would trigger the wash sale rule for an investor who sold XYZ common stock at a loss?

  1. APurchasing XYZ corporate bonds within 30 days
  2. BPurchasing XYZ call options within 30 days✓ Correct answer
  3. CPurchasing stock in XYZ's competitor within 30 days
  4. DPurchasing a mutual fund that holds XYZ stock within 30 days
Explanation

Why B — Purchasing XYZ call options within 30 days

The wash sale rule applies to the purchase of substantially identical securities within the 30-day window. Call options on XYZ stock are considered substantially identical to XYZ common stock because they represent the right to acquire the same shares. XYZ bonds, competitor stocks, and mutual funds that merely include XYZ as one of many holdings are generally not considered substantially identical.

Turn it into reps

Reading one answer is not the same as being ready

Lucky the Banker is a free practice app with 755+ Series 7 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.

Practice Series 7 freeSeries 7 exam guide
Related Investment Information & Recommendations questions