What is effective cost basis when running a cash-secured put?
Effective cost basis is the per-share price you actually pay if assigned, after subtracting the premium received from the strike; it is the most important number when deciding whether you would be happy owning the underlying at that price.
Formula
effective cost basis = strike − premiumWorked example
You sell a 30-day NVDA $400 put for $5.20 premium. If assigned, you buy 100 shares at $400 each. Your effective cost basis is $400 − $5.20 = $394.80 per share. Compare that to the spot price at the time you sold the put to estimate your "discount to current spot."
Common misinterpretation
Treating effective cost basis as a guaranteed entry price. The stock can drop materially below the strike before assignment, in which case your effective cost basis is unchanged but your unrealized loss is real.
Limitations
- Does not account for commissions or assignment fees, which can materially impact small accounts.
- For tax purposes, the cost basis adjustment from the premium depends on whether the put expires, is bought back, or results in assignment.
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Primary references
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Educational only — not investment advice. See the disclaimer and methodology. Material methodology corrections are logged at corrections.