Can someone confirm that the cost basis of a stock assigned is reduced by the net credit from rolling short puts or just final credit?
The following came back from Google when I searched for an answer. But given my word choice, want to confirm the answer.
When rolling a put option multiple times and eventually getting assigned, your cost basis in the stock is generally reduced by the net sum of all premiums collected (overall credit) from the initial sale and all subsequent rolls, not just the final credit. The total premium received decreases the effective breakeven price of the shares.
Rolling short puts to reduce cost basis.
byu/dnr4wlvs inoptions
Posted by dnr4wlvs
2 Comments
Total credits minus total debits, divided by total number of shares. So if you roll several times for credit, the credits will have lowered your cost basis below it would have been. I recommend also checking the call side premiums, I’ve found sometimes avoiding assignment is worth less than taking assignment and selling a CC. Good luck, Hope that helps!
The cost basis is just the strike price minus the premium of the assigned puts. Previous short put positions doesn’t matter since when you roll the position it’s closed already.