Cost Basis

Cost basis is the real, effective price you've paid for a stock position once premiums collected are factored in — not just the sticker price of the shares. After assignment on a cash-secured put, your real cost basis is the strike minus the premium you collected: a $50 strike with $1.75 in premium already banked leaves a cost basis of $48.25, not $50. It matters for two reasons — it should guide decisions like where to set a covered call strike, and for U.S. tax purposes, a put's premium reduces the cost basis of shares acquired at assignment (a covered call works differently: its premium adjusts the sale proceeds instead). A lower cost basis doesn't shrink your actual dollar exposure if the stock keeps falling — it only changes how the trade's real profit or loss gets measured.