What Is the Wash Sale Rule and How Does It Apply to Options Trading?

The wash sale rule prevents taxpayers from claiming a loss on the sale of a security if they buy a "substantially identical" security within 30 days before or after the sale. For options, this applies if the option sold at a loss is replaced by an identical or nearly identical option or the underlying security.

It is designed to prevent traders from artificially generating tax losses without changing their market position.