Secured put option assignment and cost basis

[amyonghwee]

A secured put option got assigned eg SQQQ put $10.50 (E-Trade). Cost of this option is eg $5

A buy transaction got executed $10.50*100 = $1050

From what I understand, the cost basis of these shares is   ( $1050-$5)/100 = $10.45

However, Etrade reported a different cost basis eg $10.25.

And their comments is " ... The cost basis for this option utilizes the Fair Market Value of the option at the time of assignment as a part of the cost basis. Our Cost Basis Team has confirmed this is reporting accurately. .."

What is the correct way for computing this cost basis ?

Pls advise.

Thanks!

[DavidD66 · Accepted solution]

I say the cost basis is $10.45 per share.  According to IRS Publication 550 Investment Income and Expenses:

If a put you write is exercised and you buy the underlying stock, decrease your basis in the stock by the amount you received for the put. Your holding period for the stock begins on the date you buy it, not on the date you wrote the put.  

If the cost basis on the 1099-B is reported to the IRS and you want to adjust it, after entering the transaction where you can indicate that the cost basis is incorrect and adjust it.

Was this part of a complex option strategy, or did you simply sell/write a put on the underlying stock?  

[Mike9241]

never heard of this (doesn't mean they aren't correct).  ask then where the other $20 shows up and what there source is for what they did

from a cash standpoint you're out of pocket $1045 ($1050 paid for stock less $5 received for option)

your stock they say has a basis of $1025. so there's $20 missing from something

[amyonghwee]

Thanks!

This is simply sell/write a put on the underlying stock

[amyonghwee]

In 2024, I will be full-time UT resident. I have RSU stocks while working in CA Marvell Semiconductor Inc.

When I sell off these MRVL shares, do I state these capital gain/loss is associated with CA ? Or UT ?

I do trading in other stocks such as SQQQ, TSLA, etc.

I believe I can declare these capital gain/loss under UT. Am I correct?

Thanks!