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Cost basis vs break-even: two numbers wheel sellers mix up

Your cost basis is what your broker says you paid for the shares, for tax. Your break-even is the price where the whole wheel, every premium counted, comes out even. They start the same and drift apart with every call you sell.

Comparison · 6-minute read · Updated 2026-10-26

The short answer

Cost basis is what you paid for your shares, as your broker and the tax rules count it. When a put is assigned, the premium from that put usually lowers the basis. Premiums from other trades usually don't.

Break-even price, for a wheel seller, is the share price where your whole position nets to zero. It counts the assigned put's premium and every covered call and earlier put you sold on that stock.

Your broker shows the first. You have to track the second yourself.

Tax rules here are general information, not tax advice; check with a tax professional or your broker.

Side by side

A worked example (an illustration, not a trade idea)

A made-up stock, XYZ. Here's one wheel, step by step.

1. XYZ is $50. You sell a $45 put for $1.00. It expires. +$100.
2. You sell another $45 put for $1.00. XYZ falls, and you're assigned at $45. +$100.
3. You own 100 shares. You sell a $45 call for $0.80. It expires. +$80.
4. You sell another $45 call for $0.70. It expires. +$70.

Now count the two numbers.

• Broker's cost basis: $45 − the assigned put's $1.00 = $44.00.
• Your wheel break-even: $45 − $1.00 − $1.00 − $0.80 − $0.70 = $41.50.

That's a gap of $2.50 a share, or $250 on the position. Now XYZ sits at $40.

At $40, your broker shows −$400. Your whole wheel is down $150. Both are true. They're answering different questions.

Which number to use when

Use your break-even to answer: "Am I up or down on this stock, all in?" That's the honest scorecard for the wheel strategy.

Use your cost basis to answer: "What will my tax form say if I sell?" and "Am I selling the shares below what I paid?"

The second question matters more than it looks.

The trap: selling calls below your cost basis

Say XYZ is at $40. You want premium, so you look at a $43 call. It's above your break-even of $41.50, so it feels fine.

If XYZ rises and the call is assigned, you sell the shares at $43. Your broker records a loss on the shares, because $43 is under your $44 basis. On the whole wheel, you're up. On paper, for tax, you've booked a loss on the shares and gains on the options.

That isn't always a problem, but it should be a choice, not a surprise. Many sellers keep a simple rule: no call strikes below cost basis without a reason written down. See premium received vs max profit.

The other mistake runs the other way. Some sellers use the lower break-even to justify holding a falling stock. "I'm only down $150" can turn into "I'm down $650" fast. The break-even tells you the score, not whether to stay.

How to track both

Keep a small log for each stock you wheel:

• every premium collected, with the date,
• the assignment price,
• the running break-even after each trade.

A spreadsheet does the job. Check it against your broker's cost basis once a month, so you know which number you're looking at.

In Canada, the adjusted cost base rules differ from US cost basis, and covered calls are widely allowed in a TFSA or RRSP, where cost base doesn't affect tax. Options permissions differ by broker. Our options assignment guide shows how assignment changes your position.

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