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Level 2

Question

Covered Call Options and Cost Basis

Forum|Forum|1 year ago
March 3, 2025
1 reply
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Not A Product Question

Level 2

Can anyone explain how the adjustment to the stock cost basis and the gain on an expired covered call interact? Does when have to adjust the cost basis even though taxes are paid on the expired call premium?

Level 15

When you sell a covered call option, it only affects the underlying stock basis if the option is exercised and the underlying stock is called away (i.e. you sell the stock). In that case, your basis in the stock is reduced by the amount of the option premium. If your call option expires worthless, then you have a reaalized short term gain for the amount of the premium. There is no basis adjustment to the underlying stock.

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Level 2

The brokerage seems to adjust the cost basis by reducing it by the amount received as premium for the expired call option