Calculating Your Real Cost Basis

The strike price on your assigned shares isn't your true cost — the premium you collected lowers it. Here's exactly how to calculate your real cost basis, and why it matters for what comes next.

The calculation

Your real cost basis after assignment is the strike price minus the premium you collected. That's the actual amount at risk per share, and it should guide every decision you make with the shares afterward.

A worked example

You sold a $50-strike put on XYZ for $1.75 premium, and were assigned 100 shares.

If XYZ trades at $49 the day after assignment, it looks like a loss against the $50 strike — but measured against your real $48.25 basis, you're actually sitting on a small gain.

Why this matters for what's next

The next step in the wheel is selling a covered call against these shares (covered in Module 4). Choosing that call's strike without knowing your real cost basis is choosing blind: a strike at or above your basis guarantees the stock itself sells at a profit if called away; a strike below it means a loss on the stock unless the call's premium covers the gap — and you can't tell whether it does without this number.

A tax note, and its limit

For U.S. tax purposes, premium collected on an assigned put does reduce your reportable cost basis, similar to the logic here — but this lesson explains trading decisions, not tax law, and it isn't tax advice. Confirm your specific situation with a tax professional or current IRS guidance.

Trade with discipline

A lower real cost basis is useful information, but it doesn't reduce your actual dollar exposure — 100 shares losing $5 each is a $500 loss whether you measure your basis at $50 or $48.25. This number changes how you measure success, not how much money is on the line, so don't let a favorable cost basis substitute for genuine risk management.

Key takeaway: Real cost basis = strike price minus premium collected — the number that should drive every decision made with assigned shares from here forward.

Next: why assignment itself, not just the numbers around it, deserves a mental reframe.

This lesson is educational content explaining standard options mechanics, not personalized investment, trading, or tax advice.