If one were to open a new SPY position and buy Sept 2027 puts to cover their new position, and it were to tank (let's say 50%. yes it's unlikely. I'm just trying to make the example simple), is there a way to keep the position at the new lower cost basis without paying capital gains on the entire gain on the put options? Yes, I know VOO has a lower expense ratio. That's a different topic.
If you just sell the options and keep the SPY position, your gain on the options is taxed. That's a tough pill to swallow.
If you exercise the option and rebuy the shares, the position is sold at a small loss (based on current options premiums currently \~5.5%). However, by repurchasing the position, the wash sale rule applies. In this situation, would only the 5.5% loss be disallowed an rolled into the cost basis of the new position? Or, would the entire 50% fall (less the \~5.5% for the options premium) be disallowed?