This column was originally published on RealMoney on Nov. 27 at 8:15 a.m. EST. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

This fall's fierce rally in stocks gave many investors one more thing to be grateful for at the Thanksgiving table this year. In the aftermath of the feast, many people who are sitting on healthy gains now have to ponder profit-taking and protection plans, and the possibility of selling off a few losers for tax-loss purposes.

Many investors, however, are rightfully reluctant to sell holdings simply for tax purposes. Of course, if you think the stock is a dog and has little chance of recovery, then you should by all means dump it. But if you still believe in a company's long-term prospects, you may want to retain ownership. Let's look at how options can be worked into your decision-making and provide some flexibility to your approach.

Before we go any further, let me remind you that you should always consult a qualified tax expert before engaging in any transactions. Tax laws, especially those related to investing, are notoriously complex and constantly changing -- each situation is handled differently. I'm not a tax expert, but one thing I can state without equivocation is this: Don't try to use options as a means to avoid taxes. If you owe taxes, you will pay -- one way or another.

Avoid the Doing the Wash

First, here's a little background. Congress created the "wash sale" rule to prevent taxpayers from selling stocks at a loss and then reacquiring "substantially identical" securities within a 30-day period before or after that loss (and thereby claiming a tax loss). A 1988 amendment defined options and various combination positions as "substantially identical" to the underlying stock, and they are thus subject to wash-sale regulations.

That means a wash sale exists when you close an option position at a loss, or if you establish a replacement position within the 61 days surrounding the realized loss. This also means you can't just sell out a stock and then buy it back the next day, nor can you purchase calls or sell deep-in-the-money puts.

One way for investors to avoid a wash sale and still realize a loss is through the process known as doubling up. Simply put, an investor would buy call options on the stock he or she would like to sell for a loss, wait at least 31 days and then sell out the shares that were originally owned to book the loss.

The last day to double up this year is tomorrow, Nov. 28. You must then wait 31 days, or until Dec. 29, until you sell out the original shares to realize the tax loss. If you don't double up but simply sell the shares, you would need to wait another 31 days, or until Jan. 29, to avoid having any repurchase classified as a wash sale. Understand that doubling up also doubles your exposure to both profits and losses during the 31-day holding period.

By using options, rather than doubling up on the actual stock holding, you can adjust the risk to suit your tolerance or outlook on a particular stock.

If you are very bullish, you might choose a deep-in-the-money strike with a long-term expiration. Or if you just want to avoid kicking yourself in case that dog you've been holding for years gets taken over for premium the day after you sell it, consider buying some shorter-term out-of-the-money calls as a means of keeping some upside exposure.

Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He appreciates your feedback;

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