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Cost basis after assignment, the arithmetic

When a put is assigned, your cost basis is the strike minus the premium you collected on that put. Many sellers also keep a second number that counts every premium along the way. Both are useful, as long as you never mix them up.

Options guide · 8-minute read · Updated 2026-10-26

The short answer

Your cost basis after Assignment on a put is the Strike price minus the premium from that put. If you sold a $45 put for $1.00 and were assigned, you own the shares at a basis of $44.

That's the number your broker reports and the one tax rules use. It only counts the premium on the put that was actually assigned. Puts that expired earlier count separately, as their own small gains.

Sellers who run the wheel strategy often track a second number, a running "mental basis" that subtracts every premium ever collected on that stock. It's a fine tool for deciding which call to sell. It's not what the tax form sees.

Two kinds of basis, side by side

The totals agree in the end. The buckets and the timing don't. That's the whole source of confusion.

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

A made-up stock, XYZ, trades at $50. Round numbers throughout.

1. You sell a 30-day $45 put for $1.00. XYZ is $47 at expiry. The put expires. You keep $100.
2. You sell another $45 put for $1.00. XYZ falls to $43. You're assigned: you buy 100 shares at $45, paying $4,500.
3. You sell a 30-day $47 call for $0.80. XYZ is $44 at expiry. The call expires. You keep $80.
4. You sell another $47 call for $0.80. XYZ rises to $49. You're called away at $47, receiving $4,700.

Now the two bases, step by step.

Tax view: gain on the shares = $47.80 − $44 = $3.80 × 100 = $380. Plus the two expired premiums, $100 and $80. Total $560.

Mental view: sold at $47 against $42.20 = $4.80 × 100 = $480. Plus the final $80 premium. Total $560.

Same answer. Different route. The mental basis is handy because it answers "what strike can I sell without locking in a loss?" in one number. The tax basis is the one that decides what you owe.

Where you stand after assignment, price by price

The mental basis can make a losing position feel better than it is. Here's step 2 again, right after assignment at $45 with $2.00 of premium collected. The shares cost $4,500.

At $35, the mental basis of $43 doesn't change the fact that you hold $3,500 of stock bought for $4,500. The premiums softened the fall by $200. They didn't stop it. If you then sell a $40 call "because it's above my mental basis of $42.20", it isn't. A $40 call is below both bases. If assigned, it locks in a loss.

What the tax form actually sees

In the US, for most individual sellers, the pieces land like this. It's general information, not tax advice; check with a tax professional, because your situation can differ.

• A put that expires: the premium is a short-term gain in the year it expires, whatever you do later.
• A put that's assigned: the premium lowers the basis of the shares. Your holding period starts at assignment, not when you sold the put.
• A call that expires: the premium is a short-term gain on its own.
• A call that's assigned: the premium is added to your sale proceeds. The share gain or loss is measured from the tax basis, and whether it's short- or long-term depends on how long you held the shares.
• A call bought back: the difference between what you collected and what you paid is a gain or loss on the option itself.

Brokers usually adjust the basis for you on assigned puts and calls. They do not fold expired premiums into the share basis, so your 1099 will show several small items plus one share sale. That's correct, even if your spreadsheet shows one running number.

One more thing: a call sold deep in the money can pause the holding period on the shares under US "qualified covered call" rules. If you hold shares for the long-term rate, read up on that before selling a low strike. Our guide on covered-call taxes covers it.

Canada: for most individuals, premiums are treated as capital gains, but the treatment can differ, so confirm with an accountant. Covered calls are widely allowed in a TFSA or RRSP; cash-secured puts depend on the broker, and options permissions differ by broker.

How to track both without mixing them up

Keep two columns in your journal for every stock you wheel:

1. Broker basis. Copy it from your positions page after each assignment. Don't edit it.
2. Running basis. Start at the assignment price and subtract every premium you keep on this stock. Add back anything you pay to buy an option back.

Use the second for strike choice. Use the first for taxes and for the honest answer to "am I down on these shares?". Break-even math for the wheel walks the running number through a longer cycle, and return if called shows how a strike below cost hides a loss. The options math cheat sheet has both formulas in one place.

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